PPF
Basic Features:
- Long-term investment option
- High on safety, by virtue of it being government-backed,
- tax benefits,
- loan options
- low maintenance cost
Account Opening:
Minimum initial deposit of just Rs 100 to start a PPF account: Accounts could be opened at any branch of the State Bank of India (SBI) or branches of its associated banks, Bank of India, Central Bank of India and Bank of Baroda besides post office
Individuals may also open a PPF account on behalf of a minor child of whom they are the guardians.
Deposit:
A minimum deposit of Rs 500 must be made during one whole financial year. The maximum that could be deposited is Rs 70,000 in a financial year. Deposits could be in either one go, or in flexible instalments (in multiples of Rs 10), 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 regularise the account again on paying the prescribed default fee along with subscription arrears.
Interest calculation:
The interest rate in your PPF account is calculated on the lowest balance between the fifth and the last day of the month. Interest is compounded annually and credited on March 31 each year.
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.
Premature withdrawal:
The entire amount in your account could be withdrawn only on maturity.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.
Pre-mature closure of a PPF account is permissible only in case of death.
Loan Facility:
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 second 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 third and the sixth 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.