PPF – Put Part Forget

If you are thinking PPF stands for Public Provident Fund then you are right, but for me PPF defines PUT PART FORGET given the nature and tenure of investment. In this blog I will be explaining my views on PPF account. PPF is a long-term government guaranteed fixed income plan. This is considered to be one of the most secured guaranteed securities in India. You have to make as low as Rupees 500/- a year to keep your account active and can invest as high as 1Lakh Rupees to get tax rebate. PPF comes with attractive 8.8% interest on your investment compounded annually.

A PPF account is opened for an initial period of 15 years. Meaning, you make a commitment of 15 years upfront allowing you investments to reap the benefits of compounding. This means you would not touch these funds for ad-hoc needs, which make PPF more suitable for goals like retirement planning and other long-term goals. You put regularly part of your savings and forget it as you cannot withdraw it. Hence PPF defines as Put Part Forget for me.

PPF account maturity date depends on financial year and not on the date of account opening. Thus if you open account before 31st March 2013 then your maturity of you account will be 1st April 2028. But if you open any day after 31st March 2013 then maturity date will be 1st April 2029.

PPF is an EEE investment. What is EEE?
Every investment has 3 Phase:

1. Investment
2. Accumulation
3. Withdrawal

Your investment in PPF will be tax exempted in all above 3 phases hence it’s an EEE investment Exempt – Exempt – Exempt.

1. Investment into PPF is tax EXEMPT.
2. Interest earned on PPF investment is tax EXEMPT.
3. While you withdraw after maturity, it will be tax EXEMPT.

You need not FORGET your investment in PPF as you can withdraw when you need the most. Yes you need not forget for 15 years, you can withdraw once per year after 7th year. There is a cap withdrawal amount; suppose you have open account in 2012 – 2013 then first withdrawal can be made during 2017-2018. Amount withdrawal should be lower of

• 50% of the balance as on March 31, 2014 i.e. 4th immediately preceding year
• 50% of the balance as on March 31, 2017 i.e. immediate preceding year.

PPF is a long-term commitment; hence withdrawal should be used judiciously. Withdrawal should be used for emergency like medical needs and not for buying car or a home.If you are short of funds for buying Car or Home then you can avail loan on your PPF investment at 2% over or above the interest you receive from PPF account from 3rd year to 6th year.

Be an Early bird to enjoy the benefits of compounding on your savings by investing in PPF. You can open account in 3 simple steps.

1. Choose an authorized SBI or ICICI bank branch which is allowed to do Government business.
2. It would take 5 minutes to fill form and submit 2 photos of yours and an id proof like PAN Card, Passport or driving license etc.
3. You will get a Passbook similar to your Savings bank with your photo affixed in it along with name of your nominee if you had mentioned.

Some more information you might want to know:

Tax Proof submission on your PPF investment:
Get a photocopy of your updated Passbook and get it attested from the branch.

What if you default?
As mentioned earlier, a minimum investment of 500/- has to be made into your account every year to keep it active. If you default to do so then you can activate it by depositing 500/- or more along with 100/- fine for year of non-payment.

What after 15 years?
If you wish not to withdraw after 15 years, then you may continue for additional 5 years. You can choose to have as many extensions as you want. Now, this continuation can be with or without further contributions. The only thing that you should be careful of is that once an account is continued without contributions for any year, the subscriber cannot change over to with-contributions extension.