Investing in Public Provident Fund — Part I
Introduction PPF is a 30 year old statutory scheme of the Central Government started with the objective of providing old age income security to the unorganized sector workers and self employed persons. Presently, there are nearly 30 lakh PPF account holders in India across banks and post offices.
Eligibility Any individual (salaried or non-salaried) can open a PPF account. He may also subscribe on behalf of a minor, HUF, AOP and BOI. Even NRIs can open PPF account.
A person can have only one PPF account. Also, two adults cannot open a joint PPF account. The aggregate annual contribution by an individual on account of himself, his minor child and HUF/AOP/BOI (of which individual is member) cannot exceed Rs.70,000 otherwise the excess amount will be returned without any interest.
Subscription The annual contribution to PPF account ranges from a minimum of Rs.500 to a maximum of Rs.70,000 payable in multiple of Rs.5 either in lumpsum or in convenient installments, not exceeding 12 in a year.
Penalty in case of non-subscription The account will become defunct if the required minimum of Rs.500 is not deposited in any year. The amounts already deposited will continue to earn interest but with no facility of taking loan or making withdrawals. The account can be regularized by depositing for each year of default, arrears of Rs.500 along with penalty of Rs.100.
Where to open A PPF account can be opened at any branch of State Bank of India or its subsidiaries or in few nationalized banks or in post offices. On opening of account, a pass book will be issued wherein all amounts of deposits, withdrawals, loans and repayment together with interest due shall be entered. The account can also be transferred to any bank or post office in India.
Interest rate Deposits in the account earn interest at the rate notified by the Central Govt, from time to time (presently 8% p.a. compounded annually). Interest is calculated on the lowest balance between the fifth day and last day of the calendar month and is credited to the account on 31st March every year. So to derive the maximum, the deposits should be made between 1st and 5th day of the month, as it also enables you to earn interest on your Savings Bank A/c for the previous month.
Tenure Although, PPF is 15 year scheme but the effective period works out to 16 years i.e. the year of opening the account and adding 15 years to it. The contribution made in the 16th financial year will not earn any interest but one can take advantage of the tax rebate.
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Amit Agarwal is a Google Developer Expert in Google Workspace and Google Apps Script. He holds an engineering degree in Computer Science (I.I.T.) and is the first professional blogger in India.