Basics things you should know about PPF
January 23, 2019
While most investors prefer equity investments to generate high returns, any diverse portfolio is just incomplete without highly secure, fixed-income securities. Public Provident Fund (PPF) Schemes are a go-to option for investors looking for decent, fixed returns with maximum security and tax benefits. While opening a PPF Account is now easier than ever, there are a few essential things that every investor should know before investing. Five such important PPF scheme details are:
1. Investment Amount
As per the rules of PPF, the minimum investment amount in PPF can be Rs 500 and the maximum can be Rs 1.5 lakh in a year. This maximum limit applies to all the PPF accounts held by you and even by a minor which has you as the guardian.
Investors can invest a lump sum amount or go for monthly contributions which can only be up to 12 in a year.
2. PPF Maturity
PPF maturity period in India is 15 years. After completion of this duration, you can extend it in the blocks of 5 years. As per the PPF scheme rule, the last date of the completion of the financial year is taken as the date of commencement, irrespective of the month of the fiscal year in which you invested.
For instance, if you started investing in PPF in October 2018, the calculation will be done from March 31, 2019. This means that the 15-year maturity will be on April 1, 2034.
3. PPF Interest Rate
The PPF interest rate is directly linked to the yields of 10-year government bonds and thus change on a regular basis. Currently, the annual interest you earn for your PPF investment is 8%. The interest is annually compounded and not paid to the investor.
This makes it one of the best options for achieving long-term financial objectives like retirement planning.
4. Tax Benefits
One of the reasons for the widespread popularity of PPF in India is the tax benefits it offers. PPF enjoys EEE (Exempt-Exempt-Exempt) tax status. All the contributions made to a PPF scheme in India are eligible for deductions under Section 80C of the IT Act. The interest that you earn over the 15 years duration is entirely exempt from tax.
In other words, all the proceeds at the end of the maturity period including your investment and the interest earned are exempt from tax.
5. Loan Against PPF
As per PPF scheme rules, loan facility is also available with PPF account between the 3rd and 6th financial year of your investment. The first loan can be taken after three years from the investment. The loan amount can be up to 25% of the amount you have invested by the end of the 2nd year.
After repaying this loan, you can take another loan before completion of the 6th year of your investment.
Starting a PPF
Now that you know the PPF investment amount, maturity date, and what is PPF interest rate, you are all set to begin investing in PPF. Select any reputed bank and visit their official website to open a PPF account. With online PPF account, you can now start investing in PPF instantly and in a hassle-free manner.
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