Key Points About Public Provident Fund Scheme

Increased investment limit makes PPF more attractive-DNA

Savings is a pre-requisite of investment as without savings there can be no investment.
I am often asked what is the best savings instrument, and I have always maintained that it is Public Provident Fund (PPF) because of its flexibility, rate of return, its and tax advantages. I would like to believe that Arun Jaitley shares this thought as he saw fit to increase the investment in this scheme from Rs 100,000 to Rs 150,000 in his maiden budget.

A PPF account can only be opened by individuals who are resident in India. A parent can open one in the name of a minor child, and an individual can open one in the name of his/ her spouse. There can only be one account in a person's name.
These can be opened only in certain banks (State Bank of India and subsidiaries, ICICI Bank, Bank of India, Bank of Baroda, Central Bank of India, Indian Overseas Bank, Union Bank of India and Vijaya Bank). All branches of these banks are, however, not permitted to open these accounts.

The great benefit I find in this saving is that one can open the account for a very affordable Rs 1,000, and then the amount one has to deposit annually can be as little as Rs 500. One can deposit this at any time during the year. In addition one can make deposits up to 12 times in a year. There is no stipulation that the same amount must be deposited every year. If you are flush with funds in a year deposit Rs 150,000. If not deposit what you can, but at least Rs 500. This flexibility makes this plan unique.
If one forgets to make a deposit in a year, the account is deactivated. It can be revived by paying an activation charge of Rs 50 and Rs 500 for the years no deposits were made.

The scheme is for 15 years. On maturity one has the option of continuing it for a further five years or encashing both principal and interest. There is no tax on the interest encashed.
Interest is paid at 8.7% per annum and it is entirely tax free without any limit. Interest alone grossed up without taking the 80C benefit amounts to nearly 15%, which is significantly better than what one may earn on a fixed deposit (8% to 9% gross).

It should be noted that interest is calculated on the lowest balance between the fifth and the last day of the month (as was done for savings bank accounts earlier). Therefore, if one is making a deposit, it would be wise to make it before the fifth of the month. Interest is compounded and credited at the end of the year to the account.
The amounts deposited in one's own account and those of one's children and spouse (which can now be as high as Rs 150,000 per annum) can be deducted from income under section 80C.

Even though the scheme is for 15 years, one can take a loan on his PPF balance from the third to the sixth year and partial withdrawals are permitted from the seventh year. The interest on the loan would be 2% above the rate of interest paid on the PPF account. The maximum amount that can be withdrawn prematurely is equal to 50% of the amount that stood in the account at the end of fourth year preceding the year in which the amount is withdrawn or the end of the preceding year whichever is lower.
Furthermore, PPF accounts cannot be attached by any court. However, income tax authorities can attach it for non payment of taxes.

On the account holder's death the balance amount will be paid to his nominee or legal heir even though the term of 15 years may not have expired. Nominees or legal heirs are not eligible to continue the deceased account.
This is a scheme I do not think anyone should ignore. Its benefits are too great.

The writer is MD of Cortlandt Rand and an author

Seven must-know facts about PPF accounts-NDTV

The key to wealth creation lies in the practice of saving regularly and systematically. The public provident fund (PPF) is one such long-term investment option that would suit investors of all types. Scoring high on safety, by virtue of it being government backed, this wonderful option comes with tax benefits, loan options and a low maintenance cost. Investment Yogi explains seven must-know facts of a PPF account to make it more profitable for you.

1. It requires just Rs. 100 to start a PPF account:                                 PPF accounts could be opened by individuals, whether salaried or self-employed, with a minimum initial deposit of just Rs. 100. Accounts could be opened at any branch of the State Bank of India (SBI) or branches of its associated banks. Other nationalised banks which offer this service are Bank of India, Central Bank of India and Bank of Baroda. The general post office too allows opening of a PPF account. Individuals may also open a PPF account on behalf of a minor child of whom they are the guardian.
2. PPF accounts have a minimum and maximum deposit limit:                                                                                                                              A minimum deposit of Rs. 500 must be made during one whole financial year. The maximum that could be deposited is Rs. 1,00,000 in a financial year. Deposits could be in either one go, or in flexible instalments (in multiples of Rs.10). You could vary the amount and the number of instalments, as per your convenience, provided you do not exceed 12 instalments in one financial year. Failing to deposit the minimum requirement would lead to your account being discontinued. Interest would, however, continue to accrue. You could regularize the account again on paying the prescribed default fee along with subscription arrears.
3. Interest calculation in PPF account:                                                          The interest rate in your PPF account is calculated on the lowest balance between the fifth and the last day of the month. So to maximise your earnings, try making deposits between the 1st and the 5th of the month. Interest is compounded annually and credited on March 31 each year.
4. Premature withdrawal from PPF:                                                                                   The entire amount in your account could be withdrawn only on maturity. However, in times of financial crises partial withdrawals are permitted subject to certain ceiling limits. You could withdraw once a year, from the 7th year onwards. Such withdrawals must not exceed 50 per cent of the balance at the end of the fourth year, or 50 per cent of the balance at the end of the immediate preceding year, whichever is lower. Premature closure of a PPF account is permissible only in case of death.
5. PPF offers multiple tax benefits:                                                                             Deposits in a PPF account qualify for a deduction under section 80C. Furthermore, the entire maturity amount including the interest is non-taxable. Not only is the interest earned tax free, PPF deposits are exempt from wealth tax too.
6. Need a loan? Use your PPF:                                                                                      You could take a loan on your PPF deposit, subject to certain terms and conditions. Loans could be taken from the third year onwards till the sixth year. Up to a maximum of 25 per cent of the balance at the end of the 2nd immediately preceding year would be allowed as loan. Such withdrawals are to be repaid within 24 months. Rate of interest charged on the loan would be 2 per cent more than the PPF interest rate prevailing then.
   
   A second loan could be availed as long as you are within the 3rd and the 6th year, and only if the first one is fully repaid. Also note that once you become eligible for withdrawals, no loans would be permitted. Inactive accounts or discontinued accounts are not eligible for loan.
7. Continuing PPF after the 15-year period:                                                               PPF account holders have an option of extending their accounts after the 15 year tenure with or without further subscription, for any period in a block of five years. The balance in the account will continue to earn interest at normal rate as admissible on PPF account till the account is closed. In case the account is extended without contribution, any amount can be withdrawn without restrictions. However, only one withdrawal is allowed per year.
   
   If you continue the account after 15 years, with continued deposit, withdrawal up to 60 per cent of the balance at the beginning of each extended period (block of five years) is permitted.