The main objective of Public Provident Fund is to provide an option to those salaried individuals who are not covered under EPF to save money for post-retirement. The self-salaried individuals can also open PPF account for long term saving. As the most popular investment scheme available in the market, OOF rules are very simple. Along with the benefit of wealth accumulation and tax benefit, PPF plan also offered the facility of partial withdrawal and loans. But prior investing in PPF scheme here we have briefly discussed 10 things to consider. However, before investing in PPF scheme, here we have elaborately discussed 10 facts about PPF that you should know.
How is Maturity Date Calculated?
PPF may come with a definite, 15-year lock-in period. But the maturity date isn't estimated from the opening date of the account. This comes in accordance with the scheme rules that govern Public Provident Funds, and as per the scheme, the maturity date is taken into account from the end of that financial year in which the scheme was purchased.
How Much you Can Contribute to the Scheme?
The minimum contribution one can make to PPF account is Rs. 500 , whereas, the maximum contribution can be made up to Rs. 1.5 lakh. This limit is valid for all investments made under your own name or for a minor under your name. You have the choice of contributing a lump sum amount or a monthly installment, which, by the way, cannot exceed a maximum of 12 installments for a said financial year.
How Many Such Contributions are allowed?
Since the lock-in period starts from the end of the financial year for such schemes, the total contributions you would have made at the end would be 16, not 15. For example, if you start your contribution, say in the year 2015, then that would be the first contribution you make. Similarly, the year 2016 would be the year you would make your second contribution, and so on.
How is Interest Calculated?
The minimum balance taken for calculation of interest is from the fifth of each month up to the end of that month. So, in case you're making monthly contributions, it's always better to start from the fifth of each month.
If you tend to make annual contributions, then contributing before April 5th of each financial year is a safer bet for you. And there is a good reason for it too. The interest may be credited at the end of March, every financial year, but is computed each month, keeping the minimum balance as of April 5th in mind. Furthermore, if your contributions tend to exceed the maximum fixed limit, then you will not earn any interest out of it.
Any resident individual can open a PPF account. However, joint ownerships are prohibited. A minor is also eligible for account opening. In order to do so, the guardian would have to do it on behalf of him or her. Also, the guardian should be a mother or a father and no one else.
In case of demise of both the parents, the grandparents and whoever would be the legal guardian at the time would be eligible to open the account. One other common restriction would be that a person cannot have more than one PPF accounts in his or her name. Also, an account opened for a minor by an adult is a separate account and doesn't belong to the said adult. Furthermore, NRIs or Hindu Undivided Families (HUFs) or even a group of people are not eligible to invest in a PPF scheme.
What is Partial Liquidity?
The lock-in period for a PPF scheme is 15 years. However, the scheme offers the benefits of partial withdrawals and partial liquidity in the case of loans. These withdrawals and loans are governed by a set of conditions which depend upon the balance in the PPF account and the tenure completed.
The interest rate charged is two percent in excess of the interest accrued on the scheme. Also, this interest is handed over to the government, and the principal amount to the investor.
An investor becomes eligible to withdraw from the account on the seventh year of investment. So, the investor won't be eligible to take loans anymore. There are other cases where the investor isn't allowed to take a loan, like when he or she hasn't paid the previous, existing loan, fully, along with interest.
How to Close the PPF account upon Maturity?
Everybody knows the PPF scheme is for 15 years and they would have to contribute for that tenure. They also know that they can withdraw the investment in full upon closure of the account. Many people don't know that there is an option to withdraw the investment in installments. However, this option isn't available for more than a year. What this means is that let's say your account matured in April of 2017.
Then that means you have the option to withdraw in installments up to 31st of March 2018. Also, in case you don't wish to close your PPF account upon maturity, then you will continue to earn interest from it, without the option to contribute further. Furthermore, you won't be allowed to open a new account without closing the existing one. One other thing you must note is your account will automatically get extended to another five years, in case you don't close it within a year or so. You also can't contribute any further to this account.
How to Extend the PPF account along with Contribution?
In case you wish to not close your PPF account, but still want to continue to contribute to it, even after maturity, then you will have to submit a Form H to your bank. However, you must do this before the PPF matures. If you continue to contribute without submitting Form H, your contribution won't earn any interest and will not be eligible for tax benefits as well. But if you still want to accrue that interest, you can draft a letter to the NS Branch of the Ministry of Finance.
How to avail Loans from a PPF account?
PPF is one of the most popular, 15-year investment schemes for making money in the long-run. However, one of the major drawbacks of this scheme is its compulsion for the investor to keep a minimum balance of Rs. 500 in the account in any financial year of investment. In case the investors fail to do so, the account will be treated as discontinued.
Having said this, here are a few facts about availing loans from PPF accounts. First off, as a PPF account holder, you are eligible to avail a loan only from the third financial year up to the end of the sixth financial year of holding the PPF account.
There is one other important thing you must note as a PPF subscriber. You are not allowed to avail loan amounts that exceed a maximum of 25 percent of the balance amount present in your PPF account after two years, on that year which immediately comes before the year you avail that loan.
To avail a loan as a PPF subscriber, you must submit a Form D, meant for a loan request. Interest for the same will be charged at two percent above the PPF interest rate details. And this loan must be paid off within 36 months of availing.
What is the Fine Levied for Defaulters?
The minimum amount required to open a post office PPF account is Rs. 100. However, there may be an Rs. 50 penalty levied for defaulters who fail to maintain a minimum balance of Rs. 500 in any financial year.
Wrapping it Up!
A PPF account comes with many advantages. One of the other advantages of having a PPF account is the ease of transfer from one bank to the other or one post office to the other, provided such transfers are approved and authorized by the government. Alternatively, you can also transfer the account from a bank to a post office and from a post office to a bank, likewise. Similarly, inter-branch transfers, that is, from one branch of a bank or a post office to the other are also possible.
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