Public Provident Fund

(PPF)

By:
Ayush Goyal (17)

Agenda

PPF: What, Where and Who?

PF Characteristics
PPF Pros
PPF Cons
Comparison of PPF with other similar
instruments
Take-Away

PPF- What, Where and Who?

What?
Savings-cum- tax saving
instrument
Government backed security
Also a retirement planning tool
( for non salaried employees)
Came into effect July 1 st, 1968,
through PPF Act- Scheme called
as PPF Scheme
Where?
SBI and its associates
Nationalized banks
Post office

PPF- What, Where and Who?

Who?

Any Indian citizen, either for self or in the

name of a minor
NRIs for income in India: Subscriptions,
however, will have to made from their NRO
account on a non-repatriable basis.
One adult can have only one account

PPF Characteristics
Investment
Criteria

Min Amount :Rs. 500/Max Amount Rs. 70,000/- p.a. The depositor can make a maximum 12 installments in a financial year.

Maturity period

The PPF account matures after 15 years but the contributions to be made are 16. This is because the 15 year period is calculated from
the financial year following the the date on which the account is opened. Thus a PPF account matures on the first day of the 17th year

Interest Rate

The current rate of interest is 8% per annum, compounded annually, calcvulated monthly. The interest for the month is calculated on
the minimum balance available in the account from 5th of a month to the last date of the month.

Nomination
facility

Nomination facility available.

Transferability

A PPF a/c are transferable among any nationalized bank and Post offices across India. A PPF account cannot be transferred from one
person to another.

Withdrawal

The facility of first withdrawal can be done from 7th year of the account subject to a limit of 50% of the amount at credit preceding three
year balance. Thereafter one Withdrawal in every year is permissible.

Loan Facility

1.

2.

3.

4.

A depositor can avail of loan facility in the third financial year from the financial year in which the account was
opened.
The loan can be taken up to 25% of the amount in the account at the end of the second year immediately preceding the year
in which the loan is applied for.
The loan is repayable in lump sum or convenient installments. Where loan is repaid within 36 months, interest is charged at
1% and if it is not repaid within 36 months, the interest at the rate of 6% is charged on the outstanding balance
A second loan can be obtained before the end of the 6th financial year if the first one is fully repaid.

Premature
Encashment

Premature closure of a PPF Account is not permissible except in the case of death of the depositor.

Deduction u/s
80C

Deposits in PPF account qualify for deduction under section 80-C of Income Tax Act. At the same time Maturity proceeds is also
completely tax exempt under section 10 of Income tax act.

Interest Taxability

The interest on deposits is totally tax exempt.

Other features

1.
2.

3.

Deposits are exempt from wealth tax.

The balance amount in PPF account is not subject to attachment under any order or decree of court in respect of any debt
or liability.
The account holder has an option to extend the PPF account for any period in a block of 5 years on each time.

I do need a PPF after

all,
1.

Lowest risk possible

There is no chance of someone running away with your money. Or later on being told that there is no way your money can be returned to you. The PPF
is a government-backed scheme, so you can be sure the government will not default. This is the highest security an investment can have and, therefore,
the safest.

2.

Tax rebate on money invested

3.

Great returns

1494798.pdf

An investment in PPF will earn you 8% per annum. But because of the tax rebate, your actual return of 8% works out to be higher.
Moreover, the returns are compounded. That means you not only earn interest in the money you put in, but you earn interest on the interest earned, too.
Let's say you put in Rs 60,000 in the first year. You will earn Rs 4,800 as interest rate. The next year, your interest rate will be computed on Rs 64,800
(Rs 60,000 + Rs 4,800) as well as whatever fresh amounts you deposit.
4.

No tax on interest earned

The interest earned is totally exempt from tax under Section 10 (11) of the Income Tax Act. The 8% per annum that you get will not be taxed.

5.

Flexibility of investment
Besides having such a huge leeway in terms of the amount of money to be invested, you can invest the money in up to 12 installments. You don't have
to put it all in one go. Each installment can be whatever amount you want it to be. They need not all be identical.

6.

Exempt from all wealth tax

All the balance that accumulates over time is exempt from wealth tax.
Also, should you default on any loan payments or declare bankruptcy and cannot repay your loans, the amount in your PPF account cannot be attacked
by the courts.

But there are few flip

sides too
1.

The interest rate keeps changing

It was initially 12% per annum, dropped to 11%, then 9.5% and is now 8%. This rate of interest is fixed by the
government and there is nothing you can do about it.
How to make this work for you: If the interest rate on PPF declines, interest rates on all other deposits (company
and bank) and bonds also declines. So, frankly, there are no other alternative fixed-return investments that can
compete because, overall, the interest rates are declining.

2.

Lengthy lock-in period

Fifteen years to be exact. But, in actuality, it works out to 16 years since the last contribution is made in the 16th
financial year.
Even if you make an investment on the last day of your account (the day it is due to mature), you will still get a
tax rebate. But, of course, you will not earn interest on that amount on the last day.
How to make this work for you: Use this as a retirement planning tool. Money you will never touch. If you are just
22, you will get the money when you are around 38. You can use it to prepay your housing loan then.

3.

Interest is calculated on the lowest balance

Interest is calculated on the lowest balance between the fifth and the last day of the month of March.
Let's say you have Rs 100,000 in your PPF account and on the 10th, you deposit an additional Rs 10,000. Your
interest will be calculated on Rs 100,000 (not Rs 110,000).

Comparison of parallel
investments
PF

PPF

NSC

ELSS

Limit of
Investment

12% or more by the

employee, 12% by
the company ( of the
salary)

INR 50070000 per

annum

Minimum INR
100, maximum
no limit

Minimum INR
500, and in
multiples
thereafter

Interest

8.5% compounded
annually

8%
compounde
d annually

8%
compounded
half yearly

Linked to equity
appreciation

Payment/
Maturity

At the time of
retirement/ leaving
the job. Transferable
from one company to
another

16 years

6 years

3 years

Tax impact

Tax exemption under

Sec 80C
Proceeds non
taxable if 5 years
completed, or ill
health exemptions

Tax
Exemption
under Sec
80C
Proceeds
on maturity
tax free

Tax Exemption
under Sec 80C
Interest
payments
taxed

Tax Exemption
under Sec 80C
Proceeds exempt
from tax if
chargeable to STT

Ownership

Self, with nomination

Self, with
nomination

Self, jointly or
nomination

Held jointly, but

exemption
benefits available
to first holder only/
or split as a
percentage of
100%

Take-Away

References

THE PUBLIC PROVIDENT FUND SCHEME, 1968

http://www.wikipedia.com
http://rediff.com
http://www.apnapaisa.com/investment/ppf/public-provident-fund-basic.h
tml
http://www.traderji.com