This option offers returns, and ensures safety of capital.
Public Provident fund (PPF) is a time-tested and popular savings instrument offering tax savings, decent returns and complete safety. Moreover, the interest earned is also tax free. The account can be opened at post offices and some nationalized banks. One needs to just fill up a simple form, attach a photograph and submit your Permanent Account Number. If you do not have a PAN, then furnish an attested copy of your ration card, voter's identity card or passport. When you open an account, you will be given a passbook in which all subscriptions, interest accrued, etc. are recorded.
It is to be noted that an individual can have only one PPF account. If, at any point, a second account is detected, the second account will be closed, and only the principal amount from that account will be refunded, not the interest. The PPF account can only be opened in single name, not joint. However, every member in the family can have an account, including spouse and children. Either father or mother can open PPF account on behalf of a minor child, but both cannot open an account each for same child. The nomination facility is available and one or more individuals can be nominated. On the death of the account holder, nominees get the accrued balance and interest. In the absence of nominees, the legal heirs get the money.
The minimum amount to be deposited in this account is Rs 500 per year, the maximum is Rs 70,000. The interest is 8 percent per annum, compounded annually. Only one deposit can be made each month. The interest is computed on the minimum balance between the 5th and end of a month. If you are investing a lump sum to save tax, deposit the amount before March 5. The balance in your PPF account can not be offered as collateral for a loan. However, you can withdraw from your PPF account after the sixth year, once a year up to a specified limit.
The PPF account is valid for 15 years. The entire balance can be withdrawn on maturity, that is, after 15 years. It can also be extended for a period of five years after that. If a subscriber deposits a local cheque or demand draft, the date of realisation of the cheque or demand draft by the subscriber is the date of deposit.
PPF is an excellent tool for long-term investment. It is a risk-free government savings scheme. The account is particularly suitable for young people,
Self-employed professionals and small businessmen who are not covered by the Employees' Provident Fund. People can start saving early and gradually build up a good corpus for the family. PPF offers the highest post tax returns among all fixed income options since no tax is levied on the investment, income and withdrawals.
As the account earns eight percent compounding interest, and tax deduction
under Section 80C, the effective yield comes out to be pretty high. If you contribute Rs 70,000 a year to your PPF for 15 years, your investment would grow to about Rs 23 lakh on maturity. This is tax-free money. In the 30 percent tax bracket, this is equivalent to almost 11.5 percent interest.
