Apr 282015

Public Provident Fund – Best investment destination


PPF is money that will be yours forever.

Knowledge of the different features of the PPF account will help you when you want to take a loan against the account, withdraw from the account, re-activate a discontinued account etc.

Here an attempt is made to introduce you all features of PPF.

What is PPF?

Public Provident Fund (PPF) is a scheme of the Central Government, framed under the PPF Act of 1968. Briefly, PPF is a government backed, long-term small savings scheme which was initially started by the Government in order to provide retirement security to self-employed individuals and workers in the unorganized sector. Today the PPF is the Indian citizens’ darling investment avenue.

But keep in mind, you need to be disciplined to make the most of the PPF investments, and also meet your liquidity needs elsewhere; because under this investment avenue your money is blocked for 15 years.

Main Features

Eligibility You need to be a Resident Indian Individual
Entry Age No age is specified(Minor is allowed through guardian)
Interest rate 8.70% p.a. compounded annually*
Tenure 15 complete financial yearsplus the first year of investment means total your fund will get blocked for minimum 16 years
Extension in tenure On completion of 15 years, the account can be extended in a block of 5 years. However there is no restriction on no. of extension an invester can availed.
Minimum Investment Rs 500 p.a.
Maximum Investment Rs 1,50,000 p.a.
Limit over no of deposits in a financial year A maximum of 12 deposits allowed in a financial year
Tax Benefit Up to Rs 1,50,000 under Section 80C;
Interest exemption under EEE model Interest earned is exempt from tax and so are the maturity proceeds
Can be opened at Any Post Office and Authorized branches of Banks
Who cannot invest Hindu Undivided Family (HUF’s);Non Resident Indian’s (NRI’s); andPerson of Foreign Origin
Mode of Payment Cash Crossed Cheque Demand DraftPay Order Online Transfer in favour of the Accounts Officer
Nomination Nomination facility is available
Interest rate Declared annually.The interest rate is currently 8.70% p.a.- This is subject to change.

Change in interest rates over year

PPF interest rate has steadily dropped over the years, and can be expected to slowly fall as the years proceed. Here’s a look at what rates used to be:

Period Interest Rate p.a.
01 April 1986 – 14 Jan 2000 12%
15 Jan 2000 – 28 Feb 2001 11%
01 March 2001 – 28 Feb 2002 9.50%
01 March 2002 – 28 Feb 2003 9.00%
01 March 2003 – 30 Nov 2011 8.00%
01 Dec 2011 – 31 March 2012 8.60%
01 April 2012 – 31 March 2013 8.80%
01 April 2013 – till date 8.70%

 It is noteworthy that the interest rate on PPF is benchmarked against the 10-year G-Sec yield and is usually 0.25% higher than the average yield on G-Secs. The interest rates on PPF are announced every year by the Reserve Bank of India (RBI) for the upcoming financial year.

Now let’s see the PPF Withdrawal Rules in SBI. According to PPF Rules in India a user can withdraw fromPPF SBI Account after the completion of 6 years. See a chart below for more information

In the above case a user can withdraw money from his / her PPF Account only at the end of 6th Year of operation, so its ideally 7th year beginning. The PPF Withdrawal Rules in SBI states that the maximum amount of withdrawal from PPF Account is 50% of the amount retained / remaining in the ppf account in the end of 4th year. In the above example its 3,55,293.45 INR and 50% of this amount is 1,77,646.73 INR and so the Withdrawal Rules in SBI PPF continues till the end of 12th year of which the amount can be withdrawn during the 15 year end. So ideally in PPF Withdrawal Rules in SBI is valid from 7th year end to 15th year end. This amount can be used for any emergency purpose or for higher studies.