This is one of the excellent Articles written about PPF in Money Talk Coloumn published in Deccan Cronicle by Mr Adhil Shetty
I Request everyone to book mark this page for the benefits that you can derive from it
PPF IS A SAFE OPTION TO SECURE YOUR FUTURE
Public Provident Fund (PPF) gives you the freedom as well as the flexibility so that you can deposit the amount of your choice and at your convenience
Public Provident Fund (PPF) is a central Goverment debt scheme offered by many banks and post offices across the country.
It allows individuals to deposit a minimum of Rs 500 or upto Rs 70000 per year for tenure of 15 years.Currently,it provides 8% on deposits.This means you can deposit an amount of Rs 5833.33(a Maximum Amount of Rs70000 a Year) every month ,You will have a balance of Rs 20 Lakhs in 15 Years as per current interest rate of 8%.Dont Forget it gets compounded.
Advantages:
There is no risk attached with the investment
PPF is very Flexible.You can deposit at your Convenience and Frequency as long as you deposit minimum of Rs 500 per year.However you cannot have more than 12 Instalments and more than Rs 70000 deposit in a year in your name.
You can open different accounts for your minor children which will help you start an early saving for them.
Compounding Works best with a very early start and thus your children can be greatly benefited.As per PPF rules,the total deposit in your own account and in the account of your minor children should not be in excess of Rs 70000 in a Financial Year
However PPF rules do not bar from making additional deposits beyond this limit in the accounts of your major children or spouse..This is especially beneficial if you want to claim tax benefits to the tune of Rs 1 Lakh under Sec 80C on the basis of Your PF Contribution alone..Do note that you cannot do the same for the PF account of your Parents.
Falling under the Exempt-Exempt-Exempt (which continues to remain so after the new DTC) Category this is most beneficial from a tax savings perspective.One can avail tax benefits under sec80c but comes with a limit of Rs 70000 including the amounts invested for one's Children.
There is no Wealth Tax on the value of the Fund.
In case of Insolvency,the money will still be safe with you and will not be attached to your assets.
Drawbacks:
Even though the interst rate is 8% compounded annually with the current levels of Inflation the returns are low compared to long-term equity investments,which come with more risks but with more returns as well.
Unlike other Investments,PPF being a debt instrument does not offer Capital Appreciation.
It Scores Low on liquidity with a lock in period of 15 Years, which can be extended to five year block indefinitely till the demise of the account holder.Withdrawls can be once a Year from the seventh Year on wards. Limited to 50% of the average of the last three Year Period's Fund value.
Things to Avoid:
You should not open two accounts in your name.If the bank or the post office comes to know about it,all other accounts except one will be closed and only the principal part will be returned.
You cannot open Joint account with another adult.
You should deposit money before 5th of every Month to take advantage of Interest as interest is calculated on the minimum amount between Fifth and the end of every month
If you are a nominee and the account holder is no more,withdraw the amount as soon as possible because a nominee cannot nominate another.If Purpose of PPF is not yet met,withdraw the amount and start a new PPF account in your name.
How to make the most of PPF:
Like any investment,you should start early in PPF .start the moment you get a job.
This will build substantial balance by the time you are in mid 30's .This money can be used to pay for your home or your kid's education.
PPF should be a part of your overall portfolio as it will reduce the volatality,At the same time ,you should treat PPF very similar to Employee Provident Fund .Try not to access this money till the maturity.This can be one of your effective retirement planning options
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