10 points to make the most of your PPF account

In my practice as a financial advisor, one investment that used to show up without fail was the Public Provident Fund or PPF, as it is popularly known as.

PPF continues to be one of the most preferred investment vehicles for Indian households. And why should it not be?

It offers guaranteed returns and that too tax-free. There is today no better long term saving tool than a PPF account.

PPF 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 a PPF 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.

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   How many PPF 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. Please note the interest will not be paid on these additional accounts.

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   How much can I invest in my PPF account? 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.

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   What is the duration of the PPF 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.

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   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 2015-16, the declared rate of interest is 8.7%. The interest is calculated every month and compounded yearly.

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   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.

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   Are there tax benefits applicable? Yes. All contributions made to PPF account to the extent of Rs. 1.5 lacs will be 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 will also be tax-free.

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   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.

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   Can I nominate someone to my PPF account? Yes, you can nominate one or more persons to the account. You can also specify the ratio in which they will share the proceeds.

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    Anything else that I should know? Yes and a very important one. 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 and get your assets attached, than the PPF account will not come under this order. It remain yours, forever.

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For all the benefits that PPF offers and coupled with the power of compounding, it definitely deserves a place in your long-term investment portfolio.

So, if you do not have a PPF account yet, open one now.

Some useful links:

• India Post
• SBI PPF
• Wikipedia
• Comparison of small savings schemes