Article

PPF (Public Provident Fund)
June 06 , 2012

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 on your behalf or on behalf of a minor.

  • The minimum amount to be deposited in this account is Rs 500 a year.
  • The maximum amount you can deposit every year is Rs 1, 00,000 in one account.
  • The amount deposited is eligible for tax benefit u/s 80C.
  • 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  • The entire balance can be withdrawn on maturity.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 also totally tax free.
  • The interest earned on the PPF subscription is compounded i.e. you earn interest on the interest earned too.
  • 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 selected post offices and banks.

Premature closure is not allowed. You can take loan to the extent of PPF deposit made from 3rd year till the 6th year. Partial withdrawals are allowed after 7th year.

The problem with PPF is its lack of liquidity. You can withdraw your investment made in Year 1 only in Year 7. However, loan against deposits made is available from the 3rd year. If you are willing to live with poor liquidity, you should invest as much as you can in this scheme before looking for other fixed income investment options.

For reference

Min & Max Investment

Min-Rs 500, Max-Rs  1,00,000 in a financial year

Rate of Interest

8.7% p.a.

Maturity/Tenure

15 years

Tax Benefit

Deposit & interest qualify for rebate under sec 80 C of IT Act

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