PPF – All that you need to know about this tax saving investment

PPF continues to be one of the most preferred investment vehicles for Indian households. The reasons are clear.

It offers guaranteed returns and that too tax-free.

It has come along way since 1968 (source: Wikipedia) when it was first launched.

Here are 10 pointers that bring you upto speed with the latest features of a PPF account. They will also serve as a guide to make the most of your investment in this account.

1. Who can open an account? All Resident Individual Indians, without any age limit, are eligible to open a PPF account. This means that NRIs and HUFs cannot open PPF accounts. You can open an account at the Post Office or with certain branches of SBI and ICICI banks.
2. How many accounts can I open? Only 1 account per individual name is allowed. In case the account is in the name of minor, then you can have your name mentioned as a guardian. However, if you open more than 1 account and it is found that then your extra accounts will be closed down and the money returned to you. No interest will be paid on these additional accounts.
3. How much can I invest? At present, you can invest a minimum of Rs. 500 and a maximum of Rs. 150,000 per year in your PPF account. The reality is that you can invest more but the interest will be paid only till the maximum limit. You can deposit in one lump sum or in 12 instalments in one year.
4. What is the duration of the account? A PPF account has a tenure of 15 years. You can further extend the tenure in blocks of 5 years without making any fresh investments. So, the tenures can be 15, 20 or 25 years with a minimum tenure of 15 years.
5. What is the rate of interest on PPF? The rate of interest is decided by the Government of India on an annual basis and is usually declared by April every year (the PPF interest cycle is April to March). For the financial year 2016-17, the declared rate of interest is 8.1%. The interest is calculated every month and compounded yearly.
6. When should I deposit money into the PPF account? The PPF interest is calculated on the minimum balance in the account between the 5th and the last date of every month. So it is best that you deposit your money before the 5th of every month. For maximum benefit and if you can, deposit the annual contribution before April 5 every year. That would give you the maximum interest in the year.
7. Are there tax benefits applicable? Yes. All contributions made to your PPF account to the extent of Rs. 1.5 lakhs are exempt from tax in that year. This benefit is under Section 80C of the Income Tax Act. Any interest that is credited to the PPF account is also tax-free.
8. Can I use the money from my PPF account? You cannot use all the money deposited before the completion of the 15 year tenure. However, you can do partial withdrawals from the account after the 7th year. After the 3rd year, you can also take a loan from the PPF account at a nominal rate of interest. All this is subject to specified limits.
9. Can I nominate someone? Yes, you can nominate one or more persons to the account. You can also specify the ratio in which they will share the proceeds.
10. Anything else that I should know? Your PPF account cannot be attached by a court order. So, if you go bankrupt and your creditors go to the court to claim their money attach your assets, the PPF account is left untouched. It remains your, forever.

Should you invest in PPF?

While it is a great investment, do no invest in it blindly. You need to take into account your goals, your asset allocation and the target rate of return that you need to reach those goals and accordingly, what asset allocation will suit you. If your asset allocation suggests that you need to invest in fixed income investments, definitely consider PPF.

However, if you are already investing a lot in your EFP or any other fixed income investments, adding more through PPF may hamper your achievement of long term goals.