Spend, Save and Invest Smartly
Safety…Safety…Safety…your money is safe. Dreaded taxes don’t eat into your returns. Yes…This is the public provident fund popularly called the PPF.
You invest your money in a PPF. You get interest on the money you invest in the public provident fund. On maturity of the PPF you get your principal (money you have invested) back along with interest. You can make up to 12 transactions a year. Minimum amount: You can invest a minimum amount of INR 500 in a year in a PPF. Maximum amount: You can invest a maximum amount of INR 1.5 Lakhs in a year in a PPF. Lock in: The PPF has a lock in period of 15 years. You can extend your PPF in blocks of 5 years with or without making a further contribution. If you continue your PPF after 15 years without making any contributions you can withdraw any amount from this account subject to a single withdrawal a year. If you continue your PPF after 15 years and you make contributions (invest money into the PPF) then you can withdraw up to 60% of the amount in the PPF account at the beginning of the 5 year block.
The interest on the PPF is calculated on the lowest balance between the 5th and the last day of the month. The interest rate payable by the PPF is linked to the Government securities rate. For the FY 13 (April 1st 2012-March 31st 2013) interest rate is 8.8% a year . For the FY 14 (April 1st 2013-March 31st2014) and FY 15 (April 1st 2014-March 31st 2015) interest rate is 8.7% a year.
“EEE” means exempt exempt exempt. The PPF enjoys a deduction under Section 80 C of the income tax act up to INR 1.5 Lakhs a year. You can invest a maximum amount of INR 1.5 Lakhs a year in a PPF and avail a deduction under Section 80 C of the income tax act on the full amount invested.
The money accumulates with time (increases as you get interest on this amount over 15 years) and no tax is charged on this amount. The money you withdraw on maturity is tax free. PPF has a new name. Riskless and taxless.
You can take a loan against your PPF from the third year to the sixth year of your PPF.
You need to remember that a lock in of 15 years makes PPF an investment for the long term. It also means less liquidity. You cannot withdraw your money easily from the PPF. PPF is a dream investment for conservative investors who take less risks and want their principal (money invested) to be safe along with interest. You can invest in a PPF if your financial goals are retirement and money for your children’s education.