Public provident fund

Presented By M.Nandhini

PUBLIC PROVIDENT FUND (PPF)

Public Provident Fund (PPF) is a savings-cum-tax-saving instrument in India. It also serves as a retirement-planning tool for many of those who do not have any structured pension plan covering them. The account can be opened in designated post offices, SBI branches and branches of some nationalized banks. ICICI banks was the first private sector bank which was authorized to open PPF accounts.

MEANING

Individuals who are residents of India are eligible to open an account under the Public Provident Fund scheme. A PPF account may be opened under the name of a minor by his/her legal guardian. However, each person is eligible for only one account under his/her name.

Non-resident Indians (NRIs) are not eligible to open an account under the Public Provident Fund Scheme. However a resident who becomes an NRI during the 15 years' tenure prescribed under Public Provident Fund Scheme, may continue to subscribe to the fund until its maturity on a non-repatriation basis.

ELIGIBILITY

A minimum yearly deposit of Rs. 500 is required to open and maintain a PPF account, and a maximum deposit of Rs.100000/ can be made in a PPF account in any given financial year. The investments can be made in multiples of Rs. 500, either as a whole sum, or in installments (not exceeding 12 in a year, though more than one deposit can be made in a month). The credit to the PPF account is made on the date of clearance of the cheque, not on the date of its presentation

INVESTMENT AND RETURNS

The public provident fund is established by the central government. One can voluntarily open an account with any nationalized bank or post office. The account can be opened in the name of individuals including minor.

The minimum amount is Rs.500 which can The rate of interest at present is 8.7% per annum, which is also tax-free. The entire balance can be withdrawn on maturity. Interest received is tax free. The maximum amount which can be deposited every year is Rs. 1,00,000 in an account. The interest earned on the PPF subscription is compounded. All the balance that accumulates over time is exempt from wealth tax. Moreover, it has low risk – risk attached is Government risk. PPF is available at post offices and banks.

FEATURES

The problem with PPF is its lack of liquidity. One can withdraw the investment made in 1st year only in 7th year. However, loan against investment is available from 3rd financial year. If liquidity is not an issue, you should invest as much as you can in this scheme before looking for other fixed income investment options.

Second problem is debasement of currency and governments inflation policy as PPF unlike physical assets will not cover a person for inflation, especially in the current economic scenario in 2013. Inflation has been substantially above the PPF interest rate for well over 5 years; as PPF Interest rate of 8.8 or 8.7% as at April 2013 is far below the double digit CPI inflation rate of 11% and way below the real inflation rate.

DISADVANTAGES OF PPF

1. Lowest risk possible

2. Tax rebate on money invested

3. Great returns

4. No tax on interest earned

5. Flexibility of investment

6. Exempt from all wealth tax

THE BEST OF PPF

1. The interest rate keeps changing

2. Lengthy lock-in period

3. Interest is calculated on the lowest

balance

4. Lack of liquidity

THE WORST OF PPF