Tag: PPF

Open PPF account in ICICI Bank – Few Points you can’t miss !

Posted on by Jagoinvestor

Do you want to open PPF account in ICICI Bank ? Yes It’s possible now. Few months back, ICICI started the facility of PPF account. The way it was advertised was “Online PPF” , but it mainly meant that you can deposit and maintain your account online. While you can also apply for the PPF account online, still you need to provide them the documents physically. In this article we will look at how to open Public Provident Fund account in ICICI Bank.

Open PPF account in ICICI Bank

Can you open PPF account in any ICICI Branch ?

No , you can not open PPF account in any ICICI Branch . For each city, there are special designated branches for opening PPF account. You will have to open the PPF account there, here is the list of those designated braches . Note that you need to have a ICICI Bank account before you open the PPF account in ICICI, however the account can be in any branch of ICICI .

Documents required for opening the PPF account in ICICI Bank ?

Case 1 : For customers who have a relationship with ICICI Bank that is < 5 years.

  • Form A
  • Passport size photograph
  • Copy of PAN card

Case 2 : For customers who have a relationship with ICICI Bank that is > 5 years

  • Form A
  • Passport size photograph
  • Copy of PAN card
  • Residence proof – Passport/ Electricity Bill

In case 2 , the additional Residence Proof must be required mostly because if the customer is quite old, his address must have got changed. Note that if you do not have a ICICI Bank account already, you will have to first open an account , in which case you will fall into case 1

How to transfer your existing PPF account to ICICI Bank account ?

As per the PPF scheme of the Government, subscribers can transfer their PPF account from one authorised bank or Post office to another (Check detailed article on how to transfer a PPF account from Post Office to SBI bank) . In such a case, the PPF account will be considered as a continuing account. To enable customers to transfer their existing PPF accounts to ICICI Bank, the following process must be followed.

  • The customer approaches the bank or the Post office where his current PPF account is held and makes an application for transfer of PPF account to ICICI Bank’s branch.
  • Once the application is processed, the existing bank/Post office arrange to send the original documents such as a certified copy of the account, the account opening application, nomination form, specimen signature etc. to ICICI Bank branch address provided by the customer, along with a cheque/DD for the outstanding balance in the PPF account.

Once transfer in documents are received at ICICI Bank branch, customers are required to submit fresh PPF account opening form (Form A) and Nomination form (Form E/ Form F in case of change of nomination), along with their original passbook . Also customer is required to submit a fresh set of KYC documents.

You will not get PPF passbook in ICICI bank by default

This is something interesting I found which was getting discussed on our jagoinvestor forum . Looks like by default ICICI bank does not provide a PPF passbook when you open it. If you really need it, you will have to give a written request and only after its processed it will be given. Under its PPF terms and conditions its mentioned that

 3.3. Passbook shall not be made available to the Customer/s for PPF Account/s which are applied for and operated through ICICI Bank Internet Banking Services. However, the Customer shall be able to view his/her transactions through his/her statement of accounts available online on the Website. In the event, i Customer wishes to have a passbook for the PPF Account applied for through ICICI Bank Internet Banking Services, he/she shall be required to put in a written request for the same at the designated base branch where PPF Account is/has been opened as per ICICI Bank’s policy / process/Primary Terms.

However, if you mostly do all the transactions online, the Passbook point is not that big thing to reject the idea of opening PPF account in ICICI bank.

Conclusion

PPF account was always opened at SBI bank or Post Office by maximum people and ICICI bank is the new player in this field. Only time will tell about their services and how they handle this PPF service. However overall for netsavvy investors who already have a ICICI bank account, seems like its a good option and which can be acted upon faster. Now you need to take your decision. Let us know if you will open a PPF account in ICICI bank or not ?

Transfer PPF account from Post Office to SBI Bank

Posted on by Jagoinvestor

How do you transfer the PPF account from Post Office to SBI Bank? This has been a big question mark for all the PPF account holders who opened their PPF account in Post Office and now want to transfer PPF account to SBI Bank or other banks so that they can take benefits of online money transfer to their PPF accounts. Also, it becomes easy for them to do another kind of activities if the PPF account is in some bank.

Transfer PPF account from Post Office to SBI Bank

So, in this article we will see the steps required to transfer PPF account from Post office to any Bank. In this example, we will use SBI as an example. But you can use the same procedure for any SBI Bank or its subsidiaries or even ICICI Bank which has recently started providing PPF accounts.

Steps required to Transfer PPF account from Post Office to SBI Bank

 

Step 1 The first step is to make sure your PPF Passbook is updated with all the interest credited to date. You need to go to the Post Office and get it updated.
Step 2 Fill up following documents

  • PPF Transfer Form SB-10(b). Download Form to transfer PPF Account here
  • An application on plain paper requesting PPF Account transfer from Post Office to SBI Bank
  • Incase you already have an SBI Account, then SBI passbook (Will fasten the process)
  • PAN/Address Proof (Can be confirmed at Post Office)
Step 3 Submit the form to Post Office Head PostMaster, He will verify your signature with the records at Post Office and verification will be completed.
Step 4 The balance in your PPF account in Post Office will be taken out and your PPF account will be closed by Head Post Master and he will note the remark of Transfer of PPF Account to SBI Bank on all the relevant documents.
Step 5 The balance amount in your PPF account will then be remitted back to State Bank of India through Cheque or Demand Draft along with other relevant documents.
Step 6 Your PPF account will then be opened (transferred) at SBI Branch and you will be notified on this. It would be better to not wait for it and you yourself keep track of the progress.

 

Go to SBI bank after all these steps are done and collect your new PPF Passbook. Note that all the previous entries of your Interest payments etc will not be present in the new PPF Passbook. It will only have the new and current entries now. So in-case you needed the previous information for claiming tax deductions, better take the printout of the previous PPF Passbook and keep photocopies of all the documents you filled and submitted for PPF Account Transfer. Read  – How to open a PPF account at SBI Bank

What about the interest part when you Transfer the PPF account from Post Office?

Do you know How PPF interest is calculated? Its only a monthly basis , but credited yearly. Now as per PPF Rules, the bank or the post office transferring the account will add interest up-to-the preceding 31st March in the account before it is transferred. The interest from 1st April onwards will be added by the transferee office after the close of the year. As per rule 8 of the scheme the interest in the account has to be added at the end of the year and not in the middle of the year in any case. So make sure to ask and confirm from Post Office Postmaster if he will do this step or not. And once the PPF Account is transferred, at the end of the year, make sure you get the total interest in your account. Just verify it at the end of the year.

What Problems you are can you face while Transfer of PPF Account?

Problem 1: The biggest problem you will face is the ignorance SBI & Post office employees have about this whole process. I think the Post Office Employee has more information (and less ego) than SBI Employees. They might reject the whole idea and say “It’s not possible to transfer”.

In that case, take the print out of Rule 153 of this document which is at the Post Office website and clearly defines the rules to Transfer PPF Account from Post Office to SBI Bank. Another thing you can do is very humanly and in a soft voice, tell them you will file an RTI to know the process of PPF Transfer from Post Office to SBI Bank and would come back with that RTI query (Post Office and SBI comes under RTI incase you didn’t know). I am sure this will be enough to speed up the whole process.

Problem 2: Another problem you may face is documentation, I am not very sure if PAN card/Address proof is required or not and what other documents, but in that case again take the help of your Post Office Head Post Master, he will surely help you. If you are stuck at any point, use sentences like “I will file an RTI and …”. That might help you 🙂

Share your experiences, and problems you faced when you wanted to Transfer PPF Account from Post Office to SBI Bank or vice versa, were you waiting for this from many years?

PPF Maturity rules for withdrawing your money

Posted on by Jagoinvestor

Do you know what are the rules on PPF maturity if you want to withdraw your money ? Do you know that you can extend your PPF account a block of 5 yrs after it’s initial maturity of 15 yrs? A lot of people think that once the PPF maturity is over, they get a licence to withdraw the money at any point of time in what ever way they want, in the case of extension of PPF. Today let me highlight some important points that you should be clear about PPF withdrawal rule in case of extension and show you how to calculate your PPF maturity amount. To start with lets answer what Kailash Chandra asked me sometime back on his PPF

I had opened PPF account on 05/05/1995 and extended for 5 years. Now the balance is Rs.651000/- as on 30/04/2012 and want to withdrawal partly. What amount can I draw please intimate. (link)

Whats the answer?

Its 60% Surprised!… lets move on

Before we move forward, let me clear that Public Provident Fund or PPF is a life time account. One can extend it for next 5 yrs for infinite times, this means you can keep on extending it for another 5 yrs after the maturity is over. That would in a way makes it look like a 5 yrs closed fixed deposit earning you applicable interest rate with tax benefits and without any taxation involved, even having a partial withdrawal benefit 🙂  That’s one reason why you want to open your PPF account right now even if you don’t need it at the moment, so that the maturity is 15 yrs away from now. See it as a milestone!

PPF Maturity Rules

1. PPF extended without any further contribution

The first situation is when you want to continue your PPF account, but do not want to put any further money in it . In this case all you want to do is just leave your PPF account as it is and let it earn the interest on the account accumulated. Note that if you dont take any action for 1 yr after your PPF matures, this option is default and automatically activates. Note that once its considered as “extended without any further contribution”, then later you cant put any further subscription in it. Now you can only withdraw from the PPF account, but cannot invest any fresh money in it. Note that in this case, you can withdraw any amount from your Public Provident Fund account, there is no limit. You can withdraw 10%, 50% or 90% as there is no limit. The balance amount will keep on earning the interest further. However you can withdraw only once a year, not more than once. (Learn how PPF account interest is calculated)

Interesting Fact : Now as you know this,  can you see an interesting point here, this way PPF can be acting as a great Pension tool, where you can withdraw the interest part yearly once and then utilize it for full year. For example if a PPF account has 1 crore into it, and lets say the interest is 8% (just an example). You can withdraw 5 lacs out of the Public Provident Fund account and the remaining 95 lacs will earn 8% interest, which will be 7.4 lacs. This 7.4 lacs will be added back to 95 lacs and the total next year would be 102.4 lacs. This way one can keep on withdrawing some amount from it and let it grow too.

2. PPF extended with further contribution

In another option, you can choose to invest in your PPF account on regular basis even after extension. But this has to be done within 1 yr of PPF maturity (before the completion of 16 yrs in PPF). Note that in this case, you can only withdraw maximum 60% of your PPF amount in total within the entire 5 yrs block. Each year you can withdraw maximum once.

For example if your Public Provident Fund balance at maturity is Rs 1 crore. Then you can withdraw a total of maximum 60 lacs in entire 5 yr block. You can withdraw 20 lacs in first year, then 10 lacs in 2nd year and then 30 lacs in 4th year. But Once 60% is consumed , you cant touch any money further for the current block. Only when the 5 yrs are completed and new block of 5 yrs start, then your balance will be 40 lacs and then again the same rule applies. However note that at the start of a new 5 yr block, you can choose whether to continue the regular contribution or stop the contribution, like we discussed in point 1.

Important : If at the time of Public Provident Fund maturity , you will have the potential to invest more in your PPF account in coming years, then better invest more and more and only when its time to retire or when you cant contribute more, extend the PPF with “no further subscription” option.

Bank Officials have no idea about PPF Maturity Rules in detail

A lot of banks (SBI) and Post office officials have no idea about PPF rules in such a detail. They will tell you that it can be extended only 2 times and hence insist on closing your PPF account once 2 extensions happen after your PPF maturity. Tell them that you know what are the rules and also teach them.

How PPF interest is Calculated (With Calculator)

Posted on by Jagoinvestor

There is a great confusion among investors on how PPF interest is calculated ? Just because a lot of investors don’t know this , they have questions like “what is the best time to invest in PPF to get maximum interest” or “Should they invest in lump sum or monthly?” . Once you know the procedure and exact ppf interest calculation method, life will be easy. Let me explain with examples how its done and also give you a ppf interest calculator in a excel sheet format at the end.

To explain in one line – “PPF interest is calculated monthly on the lowest balance between the end of the 5th day and last day of month, however the total interest in the year is added back to PPF only at the year-end” 

Excerpts from Official PPF page

8. Interest – Interest at the rate , notified by the Central Government in official gazette from time to time, shall be allowed for calendar month on the lowest balance at credit of an account between the close of the fifth day and the end of the month and shall be credited to the account at the end of each year

What this means is that the interest is not compounded monthly ! . While there is no ppf interest calculation formula, but the way its calculated is very simple ! . The interest earned in a year will added back to final amount only at the end of the year. Thats the only catch ! .

So lets see 3 different kind of cases where money is invested in PPF differently and see how the interest is calculated and added back to PPF account at the end of the year. We will see these 3 cases

Case 1 : Rs 60,000 deposited once on 1st Apr

Case 2 : Rs 5,000 deposited before 5th of every month

Case 3 : Case 3 : Rs 5,000 deposited after 5th of every month

The following examples give all the 3 cases examples assuming investment of Rs 60,000  in a year , but invested differently. I have taken interest at 8.6% per annum . Recently the PPF interest rate was increased to 8.6% and the limit was raised to Rs 1,00,000 and its now applicable from Dec 1, 2011 . So if you have  invested Rs 70,000 earlier in this year , you can still invest Rs 30,000 more in your PPF account.

PPF interest calculator

Note : Interest assumed is 8.6% for all the 12 months. However in reality it might happen that it may change in between for some months due to changes from govt.

Some Important Points on PPF Interest Calculation

  • If you are investing in PPF on monthly or several times a year, before 5th or after 5th will not matter a lot , it would be just few hundred rupees.
  • If you are investing your money in lump sum on yearly basis, it would be better if you can invest before the 5th of April, this will make sure that you earn interest on more balance for the month of Apr.
  • The interest on a particular month depends on the interest rate applicable for that month, if PPF interest rates change in between , then there might be different rate applicable from a point onwards.

Download PPF Interest Calculator Here

Online transfer to your Public Provident Fund (PPF) account

Posted on by Jagoinvestor

Do you want to invest in your Public Provident Fund (PPF) account online without going to the bank physically? If YES, then there is a good news for you. You can transfer money to your Public Provident Fund Online netbanking. Whatever we are going to talk in this article is applicable to Public Provident fund in State bank of India. If you have a PPF account in post office of other banks , then first you will have to transfer your PPF account to SBI and then you can add your PPF account to your bank account as beneficiary and then transfer the money to PPF account anytime with a click ! .

Please note that this online transfer is possible only if the PPF account is at SBI , if it is opened at Post Office , then it would not be possible, because only SBI is authorised to get online payments for PPF.  Many people have their PPF , spouse PPF and children PPF account, they can add any number of PPF accounts for online payment.

Steps for Online Transfer in PPF account

Step 1 : Add Public Provident Fund account as Beneficiary Account

The first step is to add your PPF account to your Bank account as third-party so that you can do a money transfer to them. I am using ICICI account screenshots, but all the steps must be same for other banks also.

Public Provident Fund Online

Step 2 : Choose the SBI branch Address

Next step is to choose the exact location of the BANK where the account was open . Note that if you opened a PPF account at a SBI branch where netbanking is not available , it will not be listed.

Public Provident Fund Online

The best thing about have the bank account and PPF account linked is that you can also view the PPF details and balance at a single place .

Step 3 : Add your PPF account as the Payee Account number

The last step is to add your PPF account as the Payee Account number and then click on the confirmation link . In ICICI you will first get an activation code which you will have to put to activate the account for first time .

Public Provident Fund Online
Once you have completed these 3 steps you can see your PPF account as the 3rd party account where you can transfer the money just like you send it to any account.

Steps for State Bank of India (SBI)

Option 1 : If your PPF account and Bank account is at same branch

Incase you have your PPF account and SBI bank at the same branch, then you can see your PPF account already linked with your Bank account and you can transfer the money. Prasoon shares his personal experience

I already had an account in SBI, New Delhi. I went to SBI, Hyderabad for opening a PPF account. They asked for existing SBI account number, which I provided. Also, I submitted PAN card and Bank statement copy as proof documents. It took some 15-20 minutes to get a PPF passbook.

Now a pleasant surprise –

When I came back home and logged with my saving account user ID, I was able to see my PPF account under account section. I was able to see transaction I have done till then.

Also, there is no need to add PPF account as Third Party in this case. As the PPF account appears as separate account, I can transfer amount using fund transfer (not third-party transfer). Good thing is that, this transaction is real-time and the PPF account gets updated at the same time. Also, I am able to download statements, just like with normal account.

If you are not able to see the PPF account as “linked account” , then call customer care and ask them to activate it, if that does not work , then try to add your PPF account as the beneficiary account like I explained above . If even that does not work then try to go to your branch and then ask them to link the account to your bank account.

Option 2 : If your PPF account and Bank account are NOT at same branch

If your SBI Bank account and PPF account are not in same branch/city , then as the first step you can try to add your PPF account to your Bank account as third-party to do a money transfer. If that does not work then you can go to your Branch and ask them to link your PPF account to your bank account . Mostly this should work.

Netbanking works with all the Banks

As of now we know that this online transfer is working with ICICI , SBI , IDBI , Bank Of Baroda , IDBI bak, Union Bank of India . So with this information we can conclude that any bank which supports NEFT transaction can be used to transfer the money to SBI PPF account, by adding it as third party beneficiary. Let us know if this works for you.

But your Public Provident Fund account is not in SBI ?

Incase your PPF account is with Post Office or a non-SBI bank ,then may be its a great time to transfer your PPF account to SBI account ,all you need to do is submit a form for transfer of your PPF account. It will be one time task , so do it .

How to claim tax benefits

If you transfer the money to your PPF account online then you can do two things . First is to get your PPF passbook updated at your branch about the money transfer , you will get the PPF passbook updated and show it as your proof for claiming tax benefits. The other thing you can do is take the print out of your bank statement which will show the credit of the money to your PPF account. I am not sure but may be this is possible with SBI bank only . You can use this statement as proof to claim tax benefit.

NRI’s should make use of this online transfer facility

I think the best use of this facility can be made by NRI’s , who are already have a Public Provident Fund account , but could not go to bank branch to invest in PPF and waiting for information like this.

Just try this option with Rs 500

If you are wondering if this whole netbanking will work or not , I can tell you that there are countless number of investors already doing this and I am sure you will hear from other fellow readers that they are already doing this. It would be a great idea to test this by adding your PPF account and then test a transfer of Rs 500 and confirm once that it really got transferred .

Where you looking for information like this ? Will you test this with your Public provident Fund account and do a test transfer ! , please update your comments about it in comments section .

Thanks to Jayaprakash for sending me these screenshots and also confirming that he was able to transfer money from his ICICI bank to his PPF account.

PPF interest rate now at 8.6%

Posted on by Jagoinvestor

PPF interest rates was increased to 8.6% by govt recently.  This is good news for all the investors who are primarily debt instruments investors. The Public Providend Fund interest rate was 8% from very long time and the investment limit for PPF is increased to 1 lac from old 70,000 . This will be applicable from 1-12-2011 (source) . There are some other changes which were done in other investment products , which are

  • The Maturity tenure for National Saving Certificate (NSC) has been reduced to 5 yrs (earlier it was 6 yrs) and interest rates increased to 8.4% from 8%
  • A new National Savings Certificate (NSC) would be launched with a 10-year maturity with an annual interest rate of 8.7 per cent.
  • Post office savings account interest is increased from 3.5% to 4 per cent.
  • Interest on loans obtained from PPF will be increased to 2% p.a. from existing 1% p.a
  • Kisan Vikas Patra has been discontinued from now onwards . The committee had said that the KVP was a bearer-like certificate with a regulated premature closure facility and was open to abuse by tax dodgers. They can be bought or sold without going to the post offices.
  • Maturity period for Post Office Montly Savings Scheme (POMIS) has been reduced to 5 yrs and interest rate has been increased from 8% to 8.2%. Also the 5% bonus on maturity has been scrapped.
  • Commission for agents on PPF and Senior Citizens Savings Schemes are scrapped. For any other instruments, agents commission will now be 0.5% against 1% earliar . According to the Gopinath Committee, the agents were paid around Rs 2,400 crore commission in 2010-11.
  • The interest rates of varios tenures fixed deposits in Post Office is increased , for example for 1 yrs Fixed deposit , the new interest rates is 7.7% against 6.25% earliar . There are changes in other tenure fixed deposits also (See image above) . This has happened because interest rates on small saving instruments have been aligned with G-sec rates of similar maturity, with a spread of 25 basis points.

These measures are in sync with the recommendations of former RBI deputy governor Shayamala Gopinath committee that submitted its report to finance minister Pranab Mukherjee on June 7 this year.

Jayant Pai has an interesting comment on ppfas blog which goes like this

By now you must be aware that the interest rates on Government Small Savings Schemes (SSS) have been increased. Newspapers are going around town proclaiming that this is a bonanza for small investors. Well, it is true that soon (Most probably from December 1, 2011) you will be earning more by investing in these instruments but in a way this move is similar to the recent deregulation of bank savings account rates by the Reserve Bank of India .

You may be earning more today but this could change in the future. In other words, interest rates on all SSS will be dynamic and linked to the yield for comparable Government Securities although the rate changes will occur only once in a year and the relevant announcement will be made on April 1 each year. The Government will however ensure that a spread ranging from 25 to 50 basis points over the relevant benchmark security will be maintained.

Note that the news of PPF interest hike was published on Jagoinvestor news blog within few minutes of govt decision .

How to Open a PPF account at SBI Bank

Posted on by Jagoinvestor

Most of us want to open a PPF account, but keep postponing it just because we don’t know the requirement of doing so? It seen that majority people open their PPF account with State Bank of India. Let us see 3 easy steps of opening a PPF account in SBI branch.  The whole process does not take more than 30-45 minutes if you prepared in advance and go with all the documents that are required and there are no road blocks in between. The biggest advantage of opening the PPF account with SBI is the online transaction facility you can use to deposit in your PPF account online and dont have to rush to the branch every now and then. Read why you should open a PPF account in SBI even if you dont need it right now.

3 Steps of Opening a PPF Account in SBI Bank

PPF account in SBI

1) Choose a SBI branch which is authorized to go government business.

Usually any ‘large’ branch with lots of customers should be able to this! Usually newer and smaller branches may not have this clearance facility. One doesn’t need to have a Saving Bank  account in that branch. Locate your nearest SBI Branch using this

2) Procure and submit PPF account opening form and Identity/address Proofs

It would only 3 minutes to fill. Choose a nominee and get a witness signature. Now you have to submit anyone of following Proofs.

  • Passport
  • Pan card
  • Driving license
  • Voter id
  • Ration card
  • Two Passport Size Photographs

Any government issued identity card or address proof should work. Keep originals for proof in hand to simplify the verification if needed. That’s it. The bank should now be able to open the account. Usually it may take about 20 minutes or so.

3) Get PPF Passbook

A pay-in slip needs to be filled and the initial subscription needs to be credited into your account. A passbook similar to a Saving Book passbook will be issued with your photo affixed and the nominee’s name stated.  PPF rules can be found on the back. This is all, your PPF account in SBI is opened now.

How to Link your Online SBI Account to SBI PPF account for Online Transaction

If you have an online SBI account, you can add the PPF account as a third party account for transferring money directly. As mentioned above the PPF account can be in any SBI branch. There are no processing charges for doing this transfer. When you do this online for the first time, go to the bank and update your PPF passbook and check if the transaction has occurred correctly. This has to be done since you cannot look at the amount in the PPF account as yet in SBI. This is a major drawback of SBI-PPF (and post office) accounts.

A standing instruction maybe issued from your online account for auto-credit to PPF. However there are two disadvantages

  • Rarely there maybe system failures and the standing instruction may not get honoured. So you need to check if it has occurred.
  • You cannot subscribe a lower amount if you need the cash for emergency use (this situation wont arise if you had an emergency fund )
  • You need to go to the bank to cancel the standing instruction .

There are only 12 credit transaction allowed per year. So take care of this before issuing a standing instruction.

How to Transfer your PPF account from One Bank to Another

  • Go to the branch where you want to transfer your PPF account and deposit an application with your PPF passbook
  • takes 10-15 minutes

How to Submit Proof for Tax

Take xerox of the PPF passbook updated with all transactions and get it attested in the branch. (not sure if the attestation is really required) [ Update 5th Feb, thanks for Mithilesh ]

Other points to Consider

Subscriptions must be made before the 5th of every month for the amount to taken into account for interest calculation for that month. If you want to open a PPF accoun in the name of a minor in addition to yours, the total PPF investment limit is Rs. 1,00,000. The total tax benefit is also the same. This is a new rule and is not yet printed in the PPF passbooks! See Here, Here and Here for more detail

Comments please. Are you going to Open a PPF accoun this year? Do you feel one should open a PPF account at Post Office?

Why to open a PPF account in India

Posted on by Jagoinvestor

PPF i.e. Public provident fund is the most recommended long term investment tool offered by Central government of India for Indian resident employees.

In this article we will see why one should open a PPF account even if one does not need it or have no intention of putting his money in Debt.

It may look idiotic but we will see why it would make sense. We will also see an example which will help you understand things.

Open PPF account in India

But may be you don’t know what is PPF account? you will say. Click here to Understand what is PPF account.

Lets see in detail:

Imagine a situation, you need to invest your money in some debt product which gives you assured and good returns, but you don’t want it to get locked for long period, the maximum you want is 3-4 yrs of lock in. Is it possible right now is the question you need to ask? NO!! is the Answer

  • If you invest in PPF right now, the money will be locked in for 15 yrs (partial withdrawals allowed)
  • If you invest in NSC it will be locked for 6 yrs but the interest would be taxable and hence your post-tax returns are again very less
  • Fixed Deposits are again not helpful because their post-tax returns are not attractive enough. Even if you Choose the best Fixed Deposit it won’t help
  • Debt funds are again not answer because again the post-tax returns are less

So how does opening a PPF account now helps us?

Well, definitely it can’t help us at this moment, But imagine future let’s say after 11 or 12 yrs you need to invest some money for short term; at that time, you can put money in your PPF account and it will get matured in next 3-4 yrs and whole maturity amount would be Tax-free and earn you interest of 8%.

It costs just Rs. 500 per year for PPF account to stay active. So if you need the PPF account right now, then open it NOW and if you don’t need it right now, still open one NOW so that your Loan-in-period goes down by 1 every year.

Also, once in a while whenever you feel that you need your money to go in Debt component, simply use the PPF.

Read an article on Asset Allocation to understand the good mix of Equity and Debt Component.

So, here is what I suggest: Open PPF accounts in your name, your Spouse name and your Children name at interval of 2-3 years. So, after 12-13 years, each of the PPF accounts will mature in a gap of 2-3 years.

You can use this as an investment product that gives 8% assured tax free returns. 🙂

Please comment to let me know your views. Is there any issues involved with this article content? Is there anything I have not covered? Your comments are valuable.

Everything you need to know about PPF and EPF

Posted on by Jagoinvestor

Everyone wants to spend an easy life without any stress specially related to money. And this is why people are becoming more and more conscious about their savings and investment.

It is good for now that you are working and earning good enough to cover your expenses, but what after your retirement? Have you thought how will you manage your expenses after your retirement?

EPF and PPF

Let me tell you, there are options like EPF and PPF in which you can invest and save your money which you can utilize after your retirement.

Let’s see each of EPF and PPF in detail. Both are provident fund benefits for retirement.

Employee Provident Fund (EPF)

The Employee Provident Fund is a retirement benefits scheme that is available to salaried employees. Under this scheme, a stipulated amount (currently 12%) is deducted from the employee’s salary and contributed towards the fund.

This amount is decided by the government. The employer also contributes an equal amount to the fund. However, an employee can contribute more than the stipulated amount if the scheme allows for it. So, let’s say the employee decides 15% must be deducted towards the EPF.

In this case, the employer is not obligated to pay any contribution over and above the amount as stipulated, which is 12%.

There are some specific features of EPF which are beneficial for the account holder. These features are as follows –

  • Return on Investment: 8.65%
  • If you urgently need the money, you can take a loan on your PF. You can also make a premature withdrawal on the condition that you are withdrawing the money for your daughter’s wedding (not son or not even yours) or you are buying a home.
  • tax benefit under Sec 80C.
  • The amount if withdrawn after completing 5 years in job will not be taxable.

Public Provident Fund (PPF)

The Public Provident Fund has been established by the central government. You can voluntarily decide to open one. For that you need not be a salaried individual, you could be a consultant, a freelancer or even working on a contract basis.

You can also open this account if you are not earning. Any individual can open a PPF account in any nationalized bank or its branches that handle PPF accounts. You can also open it at the head post office or certain select post offices.

You can take a loan on the PPF from the third year of opening your account to the sixth year. So, if the account is opened during the financial year 1997-98, the first loan can be taken during the financial year 1999-2000 (the financial year is from April 1 to March 31).

The loan amount will be up to a maximum of 25% of the balance in your account at the end of the first financial year. In this case, it will be March 31, 1998.

You can make withdrawals during any one year from the sixth year. You are allowed to withdraw 50% of the balance at the end of the fourth year, preceding the year in which the amount is withdrawn or the end of the preceding year whichever is lower.

For example:

If the account was opened in 1993-94 and the first withdrawal was made during 1999-2000, the amount you can withdraw is limited to 50% of the balance as on March 31, 1996, or March 31, 1999, whichever is lower.

If the account extended beyond 15 years, partial withdrawal — up to 60% of the balance you have at the end of the 15 year period — is allowed.

Watch this video to learn more clearly about PPF and EPF:

Features of PPF:

  • The minimum amount to be deposited in this account is Rs 500 per year. The maximum amount you can deposit every year is Rs 70,000.
  • Return on investment : 8%
  • tax benefit under Sec 80C , no tax on the maturity and no tax on interest earned.
  • If you’re involved in a legal dispute, a court cannot attach or question the money in your PPF account.

Who should invest in PPF?

Usually, everyone can invest in PPF but it’s mainly for those people who are very conservative and cant take risks to a great extent.

Anyone who wants to invest in the long term in some secure saving instrument must invest in PPF. To achieve long term goals there are many option like:

  • Mutual Funds (Equity)
  • Shares (Equity )
  • PPF (Debt)
  • Fixed Deposit (Debt)
  •  NSC (Debt)
  •  Others

Out of these, all under the Debt category are safe. PPF is the most recommended if the investment horizon is very long like 15+ years. Because of compounding your money will grow into a big amount.

I would be happy to read your comments or disagreement on any topic. Please leave your queries or doubts in our comment’s section.