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The Public Provident Fund (PPF) is amongst the most popular investment option. Besides the tax deduction and eight per cent tax-free interest, it also acts as a social security cover.
Over 16 years, an annual contribution of Rs 70,000 grows to over Rs 21 lakh, almost 30 times the annual investment. This capital, built over time, can serve multiple purposes like catering to the education of children, medical emergencies and even retirement. Investments: One can invest Rs 1 lakh in PPF for those who wish to do so. Let's remember, PPF rules limit the investment to a maximum of Rs 70,000 in the PPF accounts of self and minor child. Section 80C doesn't impose any sectoral caps on investments.Click NEXT to read on
Withdrawals: Though PPF is a 15-year instrument, it ignores the year of opening the account. Therefore, the account actually becomes a 16-year one and the account holder can contribute to the account even during the 16th financial year, even on the last day.
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Reviving accounts: If the investor fails to subscribe even the minimum Rs 500, the account is considered discontinued. Loans and withdrawals are not available from a discontinued account.
At the end of the term or any time thereafter, the investor will be paid the balance with accrued interest for the full period.Click NEXT to read on
Extending investments: You can keep extending your PPF account even after the initial term of 16 years of PPF is over. Each time, the extension is for five years.c So, the same account can be converted into a five-year recurring deposit that offers the eight per cent tax-free interest under Section 80C and immense liquidity.
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Liquidity, continuing: An investor, continuing his account with fresh subscriptions, can withdraw up to 60 per cent of the balance to his credit at the commencement of each extended period.
He could either withdraw this amount at one go or in installments over the next five years till the extended period is over.
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He can withdraw Rs 9 lakh, which is 60 per cent of the balance Rs 15 lakh in his account. He could either withdraw the entire Rs 9 lakh at one time, or withdraw the same amount in installments over the next four years.
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The balance will continue to earn interest till completely withdrawn. In other words, the account can be used to set up an yearly pension.
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Without the form, all contributions will be returned without any interest as and when the default is noted by the account office.
The writer is Director, Wonderland Consultants.