Public Provident Fund

Public Provident Fund

What happens when your PPF account matures- Business News


A public provident fund (PPF) account is an investment option that provides income tax deduction u/s 80C for the amount invested (subject to a limit of Rs 1.5 lakh a year). Interest received is exempt from tax and there is no tax on the amount received on maturity of the account either.
Public Provident Fund ( PPF ) was introduced in India in 1968 with the objective to mobilize small saving in the form of an investment
It can also be called a savings-cum-tax savings investment vehicle that enables one to build a retirement corpus while saving on annual taxes. Anyone looking for a safe investment option (backed by govt. of India) to save taxes and earn guaranteed returns should open a PPF account

How Much One Can Earn From PPF?

If a person invest 1.5 lac (Maximum, Minimum is 500 rs/year) Per year and that to between 1st April to 5th April of every financial year one could earn 40.68 Lac (@7.1% interest) after 15 years. 

Detailed calculation is shown in below table

Year
Yearly Deposit (Between 1st April to 5th April of every year)
Total Principal
Interest Rate
Interest Earned Yearly
1
                               1,50,000
             1,50,000
7.10%
                  10,650
2
                               1,50,000
             3,10,650
7.10%
                  22,056
3
                               1,50,000
             4,82,706
7.10%
                  34,272
4

1,50,000
             6,66,978
7.10%
                  47,355
5
                               1,50,000
             8,64,334
7.10%
                  61,368
6
                               1,50,000
10,75,701
7.10%
                  76,375
7
                               1,50,000
13,02,076
7.10%
                  92,447
8
                               1,50,000
          15,44,524
7.10%
               1,09,661
9
                               1,50,000
          18,04,185
7.10%
               1,28,097
10
                               1,50,000
          20,82,282
7.10%
               1,47,842
11
                               1,50,000
          23,80,124
7.10%
               1,68,989
12
                               1,50,000
          26,99,113
7.10%
               1,91,637
13
                               1,50,000
          30,40,750
7.10%
               2,15,893
14
                               1,50,000
          34,06,643
7.10%
               2,41,872
15
                               1,50,000
          37,98,515
7.10%
               2,69,695

 Total Amount Invested
 Total Maturity Amount

 Total Interest Earned
After Maturity
                             22,50,000
 40,68,209

            18,18,209

But the wonder of compounding is here when you further extend the PPF account for next 5 years with same investment amount then one could earn 66.5 Lac rupees at the 20th year
Detailed calculation is shown in below table

Year
Yearly Deposit (Between 1st April to 5th April of every year)
Total Principal
Interest Rate
Interest Earned Yearly
1
                               1,50,000
             1,50,000
7.10%
                  10,650
2
                               1,50,000
             3,10,650
7.10%
                  22,056
3
                               1,50,000
             4,82,706
7.10%
                  34,272
4
                               1,50,000
             6,66,978
7.10%
                  47,355
5
                               1,50,000
             8,64,334
7.10%
                  61,368
6
                               1,50,000
          10,75,701
7.10%
                  76,375
7
                               1,50,000
          13,02,076
7.10%
                  92,447
8
                               1,50,000
          15,44,524
7.10%
               1,09,661
9
                               1,50,000
          18,04,185
7.10%
               1,28,097
10
                               1,50,000
          20,82,282
7.10%
               1,47,842
11
                               1,50,000
          23,80,124
7.10%
               1,68,989
12
                               1,50,000
          26,99,113
7.10%
               1,91,637
13
                               1,50,000
          30,40,750
7.10%
               2,15,893
14

1,50,000
          34,06,643
7.10%
               2,41,872
15
                               1,50,000
          37,98,515
7.10%
               2,69,695
16
                               1,50,000
          42,18,209
7.10%
               2,99,493
17
                               1,50,000
          46,67,702
7.10%
               3,31,407
18
                               1,50,000
          51,49,109
7.10%
               3,65,587
19
                               1,50,000
          56,64,696
7.10%
               4,02,193
20
                               1,50,000
          62,16,889
7.10%
               4,41,399

 Total Amount Invested
 Total Maturity Amount

 Total Interest Earned
After Maturity
                             30,00,000
 66,58,288

            36,58,288

How to open a PPF account?

A PPF account can be opened with either a Post Office or with any nationalized bank like the SBI or Punjab National Bank, etc. Now days, even certain private banks like ICICI, HDFC and Axis Bank among others are authorized to provide this facility. You need to submit the duly filled application form along with the required documents i.e. the KYC documents like identity proof, address proof, and signature proof. And now a day’s some banks provide online facility to open PPF account online without visiting to bank. 

Features of PPF One Should Know

Tenure: The PPF has a minimum tenure of 15 years, which can be extended in blocks of 5 years as per your wish. 

Investment Limits:
 PPF allows a minimum investment of Rs 500 and a maximum of Rs 1.5 lakh for each financial year. Investments can be made in lump sum or in a maximum of 12 instalments.
 
Opening Balance: The account can be opened with just Rs 100. Annual investments above Rs 1.5 lakh will not earn interest and will not be eligible for tax saving.
 
Mode of deposit: The deposit into a PPF account can be made either by way of cash, cheque, Demand Draft or through an online fund transfer.
 
Nomination: A PPF account holder can designate a nominee for his account either at the time of opening the account or subsequently.
 
Joint accounts: A PPF account can be held only in the name of one individual. Opening an account in joint names is not allowed.
 
Risk factor: Since PPF is backed by the Indian Government, it offers guaranteed, risk­-free returns as well as complete capital protection. The element of risk involved in holding a PPF account is minimal.
 
Who can invest in PPF: Any Indian citizen can invest in PPF. One citizen can have only one PPF account unless the second account is in the name of a minor. NRIs and HUFs are not eligible to open a PPF account.
 
Loan against PPF: You can take a loan against your PPF account between the 3rd and 5th year. The loan amount can be a maximum of 25% of the 2nd year immediately preceding the loan application year. A second loan can be taken before the 6th year if the first loan is repaid fully. 

What is the interest rate on PPF?

The current interest rate is 7.1% (for quarter April to June 2020 prior to which it was 7.9%) the interest rate is decided every quarter and is compounded annually. The Finance Ministry set the interest rate, which is paid on 31st March. The interest is calculated on the lowest balance between the close of the fifth day and last day or every month.
History of interest rate of PPF since 1986
  • PPF Interest Rate 1986 to Jan-2000 – 12.0%
  • PPF Interest Rate Jan-2000 to Feb-2001 – 11.0%
  • PPF Interest Rate Mar-2001 to Feb-2002 – 9.5%
  • PPF Interest Rate Mar-2002 to Feb-2003 – 9.0%
  • PPF Interest Rate Mar-2003 to Nov-2011 – 8.0%
  • PPF Interest Rate Dec-2011 to Mar-2012 – 8.6%
  • PPF Interest Rate 2012-13 – 8.8%
  • PPF Interest Rate 2013-14 – 8.7%
  • PPF Interest Rate 2014-15 – 8.7%
  • PPF Interest Rate 2015-16 – 8.7%
  • PPF Interest Rate 2016-17 (1st April 2016 – 30th September 2016) – 8.1%
  • PPF Interest Rate 2016-17 (1st October 2016 – 31st March 2017) – 8.0%
  • PPF Interest Rate 2017-18 (1st April 2017 – 30th June 2017) – 7.9%
  • PPF Interest Rate 2017-18 (1st July 2017 – 31st Dec 2017) – 7.8%
  • PPF Interest Rate 2017-18 (1st Jan 2018 – 30th September 2018) – 7.6%
  • PPF Interest Rate 2018-19 (1st Oct 2018 – 30th June 2019) – 8.0%
  • PPF Interest Rate 2019-20 (1st July 2019 – 31st Mar 2020) – 7.9%
  • PPF Interest Rate 2020-21 (Currently – 1st April 2020 onwards) – 7.1%

PPF withdrawal

As a rule, one can close a PPF account only upon maturity i.e. after the completion of 15 years. Upon completion of 15 years, the entire amount standing to the credit of an account holder in the PPF account along with the accrued interest can be withdrawn freely and the account can be closed.
However, if account holders are in need of funds, and wish to withdraw before 15 years, the scheme permits partial withdrawals from year 7 i.e. on completing 6 years.
An account holder can withdraw prematurely, up to a maximum of 50% of the amount that is in the account at the end of the 4th year (preceding the year in which the amount is withdrawn or at the end of the preceding year, whichever is lower). Further, withdrawals can be made only once in a financial year.

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