ADVANCED FEATURE OF PPF ACCOUNT

 

PPF implies that Public Provident Fund, it is very common small saving scheme. Although it is known as small saving scheme, it is very popular because of tax benefit provided by this scheme. Contribution, accrued interest and maturity all the three elements is exempted under PPF. This is the basic thing that knows everybody but beside this basic thing it has some more interesting feature that one should know when he takes his decision.

1.       INTERSET RATE IS ASSURED BUT NOT FIXED: The interest rate of the PPF is not fixed but linked to the 10 year government bond yield. The rate doesn’t change on a day –to-day basis but is fixed at the beginning of a quarter based on the average bond yield in the previous three months.

2.       LOCK-IN IS NOT 15 YEARS: The PPF is a long term investment with tenure of 15 years. But this doesn’t mean your money gets locked up for that long. The 15-year term is from the day of opening the account. With every year, the lock-in period progressively reduces. Since partial withdrawals are allowed after the six year, some investors even treat the PPF as an emergency fund.

3.       TENURE CAN BE EXTENDED: When the account matures, the subscriber can withdraw the entire corpus. But the account can also be extended indefinitely in blocks of five years. This extension can be with or without contributions. To extend the account with contribution, the subscriber must write to the post office or bank within one year of maturity that he wants to continue investing in the PPF account. If he does not inform the bank or post office the account will automatically be extended but will not accept further contributions. The balance will earn the normal interest and investor cn make one withdrawal in a year.

4.       PARTIAL WITHDRAWALS ALLOWED: PPF allows investors to make partial withdrawal in case of an emergency. After the sixth year, an investor can withdraw up to 50% of the balance at the end of the fourth year, or the immediate preceding year whichever is lower. If the account has been extended without additional contribution, the subscriber can withdraw any amount from the account. But if the account has been extended with additional contribution, the withdrawal limit is 60% of the account balance at the start of the extension period.

5.       LOAN FROM PPF: One can take a loan from PPF between the third and sixth years. The loan is capped at 25% of the balance at the end of the previous year. The interest rate on the loan is 1% higher thn the prevailing PPF rate. However once the loan is disbursed the interest rate gets locked till the end of the repayment period. the PPF loan is for 36 months. If the borrower is not able to repay within this period, the interest on the loan get bumped up to 6% above the PPF rate.

6.       INVEST BY 5^TH OF MONTH: The PPF interest is compounded annually but the calculation is done every month. The interest is on the lowest balance between the 5^th and last day of every month. If one invest before the 5^th the contribution will earn interest for the month too. Otherwise it’s like an interest free loan to the government for a month.

7.       ACCOUNT CAN BE FORECLOSED: An investor can even close his PPF account prematurely if he needs money for higher studies, medical treatment of self or families or if his residency status has changed. But this can be done only if the account has completed five years. There is also a penalty for foreclosure.

these are the special feature of PPF account other than tax benefit. One can open PPF account in any bank and post offices with minimum deposit of Rs 500 and maximum amount that can be deposit by any person is 150000.