Why You Should Invest in a Public Provident Fund Account?

by Vinaya HS on March 12, 2007

in Finance

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If you haven’t already started on a long-term savings strategy, you could begin on one this April with a Public Provident Fund (PPF) subscription. I believe that the PPF was started by the Government of India in lieu of social security. (I doubt if a Government can ever provide social security to a billion plus people.)

Your money in the PPF account is perfectly safe, earns 8% (at the moment), qualifies for Section 80C of the Income Tax Act, and at the moment is EEE (Exempt Exempt Exempt – the money you invest, the interest earned, and the final withdrawable amount are all tax exempt). You can invest a low of 500 rupees and a high of 70,000 rupees a year (over a maximum of twelve installments per year). You are also allowed to withdraw money or take a loan; there’s a weird formula to compute the same, but I advise against doing so ever.

At the end of 15 years, you can either extend your subscription in blocks of 5 years or else close the account and reap the benefits. The PPF is a great way to set aside money for say your child’s higher education. You can open a PPF account at State Bank of India (SBI) or any of its subsidiaries or at the local post office. An individual is allowed to have only one PPF account.

Click here to download a PPF calculator.

The calculator above can be used for quick reference. The only input you need to enter (in cell B3 — highlighted in yellow) is the amount you are ready to put into your PPF account each month. The calculator gives you an idea of the maturity amount that you can expect over a 25-year period.

Let me know if you find this to be useful. If you already have a PPF account, what goals did you have in mind when starting one?

Update: September 25, 2008

Below is a continually updated list of PPF-related queries which are answered in leading financial magazines such as Outlook Money and Money Today.

From Money Today, September 18, 2008 — Page 30

Q: My wife wants to open a Public Provident Fund (PPF) account in her name and another in the name of our minor daughter. I do not have a PPF account. Who will be eligible for the deduction for the money deposited in our daughter’s PPF account — my wife or I?

A: One can open a PPF account in one’s own name or in the name of a minor as a guardian. However, you can have only one PPF account in your name. If you have two PPF accounts, one will be closed and you will be refunded only the principal, not the interest. Also, two adults cannot open a joint account, though an account-holder is free to appoint nominees. Since your wife is planning to open an account in her name, your daughter’s account will have to be under your guardianship. Therefore, you will be eligible to claim a deduction for contribution to that account. Your wife can claim a deduction for the contribution she makes to her own account. A PPF account can be opened even if you have an Employees’ Provident Fund account with your employer.

From Outlook Money, October 08, 2008 — Page 24

Q: I have a PPF account with SBI. I extended it for five years after the account’s first 15 years got over in 2006. The bank says that since I have withdrawn 60% of the balance as was in 2006, which is the maximum amount permitted to be withdrawn from an extended account, no withdrawal will be possible for the next two years. What are the rules regarding withdrawals from an extended PPF account?

A: Assuming that you have made new deposits during the extended period, the rules regarding withdrawals in an extended PPF account stipulate that only one partial withdrawal is allowed each year subject to the condition that the total of thw withdrawals during the 5-year extended period shall not exceed 60% of the balance as on the start of that period. The bank’s refusal is in accordance with this rule.

Q: As with various payments, is it possible to have standing instructions for transfer of funds from a savings account to a PPF account? If yes, then how can this be done?

A: Yes. It is possible to give standing instructions to the bank to transfer excess amount from your savings bank account to a PPF account, provided the two are with the same bank. You also need to keep track of the amount being transferred as PPF contributions in one financial year cannot exceed Rs 70,000.




Thanks for reading this article. I'd love to hear your opinion. Please use the comments section below to share your thoughts. I frequently write new articles that also cover several other aspects of personal finance including credit cards, financial goals, health insurance, income tax, life insurance, mutual funds, retirement planning, and much more. You can Subscribe through Email and receive new articles directly in your Inbox or you can Subscribe through the RSS Feed and receive new articles in your feed reader.

{ 255 comments… read them below or add one }

chand narayan sharma May 10, 2010 at 3:54 PM

I have deposited a cheque of Rs 50.000/= of HDFC dated 5-5-10 in SBI bank
on 5th of May assuming that date of deposit of cheque is date
of acceptence in PPF case not date of reliasation as I heard in
one of the advertisement of PPF by Dr.Narottam Puri on Door darshan
long back.

pl clearify.
cn sharma baroda

Ajay May 11, 2010 at 6:40 PM

@kamal ranjan chakraborty
Yes. Provided you deposited your money in her account

Ajay May 11, 2010 at 6:41 PM

@Ramkumari
Try to open a PPF account in a bank like SBI. easy to deposit money if you have internet access and login id for such banks.

Ajay May 11, 2010 at 6:45 PM

@Animesh Kumar
The limit for 70000 is only for PPF and NOT for the PF that the company deducts.
Suppose you deposit 70k in PPF then your 1 Lakh limit for Tax can be comprised of
1. 19200 (PF 1600 * 12 months)
2. 70000 (Max you can deposit in PPF)
3. ELSS
4. Life Insurance premia
etc.

Ajay May 11, 2010 at 6:50 PM

@Kishore Kumar Jethanandani
Yes you can deposit varying amounts in PPF account

PS: These ULIPs and SIPs have put a lot of things into our heads and that includes “Can I invest varying amount into PPF, Can I skip a month and then resume investing again” and so on :)

Vinaya HS May 11, 2010 at 9:15 PM

Ajay,

Thanks a ton for answering these queries. :-)

Manoj Kumar Gupta May 15, 2010 at 4:13 PM

Please help
Sir I am a two PPF A/c open Last 10 years in a joint name (1) A/c Ram Kumar & Renu Kumari (2) A/c Renu Kumari & Ram Kumar. A/c open time my agent no clear PPF Rules and fill the form in joint names again department of post is a accepted this form & open a account above names and maintain a PPF A/c by Department Last 10years.
But last month post office asked a your a/c is a wrong open and emisate a close PPF A/c without intrest.
Please oblige me
thanks

MITHU ROY May 27, 2010 at 3:26 PM

Dear Sir
If any person starts a PPF while staying in India and after say 6 yrs shifts to another country, then can he continue with the PPF for rest of the years? Will he be considered as an NRI even if he maintains the citizenship of India?
Please clarify

harjinder singh May 30, 2010 at 12:13 PM

I think I can deposit Rs 50000/- in PPF account of my wife on a/c of debt owed and invest Rs 70000 in the PPF accounts of my children and mine without any loss of interest on the whole Rs 120000/-. Do u agree?

M P BHUKTIAR July 4, 2010 at 10:34 PM

Dear Vinaya,
I understand and have also confirmed from the Director Small Savings, the total amount of deposit in PPF Accounts held in an individual’s name and in the names of minor children under his guardianship can not exceed Rs.70000/- ( Total) in a financial year. Your version that he can deposit seperately Rs.70000/- in each account is wrong. Please check on it.
Also investments made in two seperate Accounts of both the spouses do not entitle a person to take exemption under 80 C for more than Rs.70000/-. As the income tax law exemption granted under PPF Scheme is limited to Rs.70000/- only. No deposit under PPF can exceed Rs.70000/- together in one’s own account and including the accounts of minors’ under his or her guardianship. There is no question of talking of tax exemption or interest on excess amount of deposit above 70000/.
I shall appreciate if you could clarify these points and prove if any thing contrary to my view point.
Regards
M P BHUKTIAR
Panchkula

Ajay July 9, 2010 at 4:03 PM

@M P BHUKTIAR
What you mean to say that a person cannot deposit more that 70k in all 3 accounts (his, his wife’s and child’s account) put together ?
What if one wants to gift 70k to his child and deposit that amount in PPF account in the child’s name, does the sam to his wife’s account and he can deposit 70k in his account. But he does not want take the tax advantage (or rather the govt does not allow). Can one do this ?

Vinay July 20, 2010 at 5:55 AM

Hi,

I am a OCI holder ( Overseas citizen of India) and have few queries related to PPF
1) Are OCI holders eligible to open PPF
2) I currently do not have any income in India but if I file my tax retures regularly showing PPF deposits, will I be elgible to claim the tax deductions later ( for all the deposits made now) when I come back to India in a few years ?

Nandini August 13, 2010 at 2:39 PM

All the queries i had got clarified when i went through the comments.It’s v usefull and you are doing a good Job.

Next month before 5th i will invest in this PPF .

Kamal Kant Kaushal August 23, 2010 at 1:53 PM

Dear sir,

PPF return would be more or If I take market plus scheme in insurance is more?

G August 29, 2010 at 11:11 PM

Can you make a general provident fund calculator in which the user can define all values, which can make allowances for withdrawals also, and still calculate the interest accrued?
It would be very useful for me. I looked and looked online but did not find one which is for free. You are really good I must say!
Thanks

Sanjay Goswami September 2, 2010 at 10:26 AM

How do I pay PPF installments through net banking.

Ram Swaroop Sharma September 5, 2010 at 5:00 PM

I have a PPF a/c with SBI to be matured in Feb 2012 with regular deposits and no loan.
I lost my job last year and no income now and am under financial hard ship.
To whome I should apply for premature closure of the a/c

Abhishek September 30, 2010 at 12:33 PM

Hi

I have a PPF a/c in Post Office I want to transfer it to SBI is it possible?
Also if it is not possible then can I open another PPF a/c in SBI?

Thanks

Subrata Mukhopadhyay October 5, 2010 at 4:48 PM

Dear Sir
20 years(15+05) of my PPF account expires on 20.01.2012 but i wish to withdraw my Final amount in the month of Sept 2013(on retirement).
Will my Balance amount earn interest from 21.01.2012 till date of withdrawal?
Please revert
Subrata Mukhopadhyay

Jeyaram G October 13, 2010 at 10:44 PM

Hi,
I do feel what Mr Bhuktiar has stated is correct from what I have seen thru the internet.

My further clarification is – my PPF account is ending 15 years by 2011 and I plan to extend by a 5 years block ? Can I continue to invest Rs 70000 from 16th year or is it not allowed? If it is not allowed, can I open another account on my name or on my minor daughters name and deposit Rs 70000 per year?

pramod November 4, 2010 at 11:46 AM

Is the interest given by the Public Provident Fund Schemes is same throught the account stands? or it varry with time to time. i.e. is interest given at the time of the opening of the account is constant upto the maturity of the account or not?

Ruturaj November 11, 2010 at 4:33 PM

Hello,
My query is as follows:
I have opened PPF account in 1991 and now I am about to complete my extended period of 5 years of this account in March 2011. Can I extend this period by 5 more years?
Thank you.

subhash chandra Prasad singh November 16, 2010 at 1:06 PM

Ihave PPF account in Head post office in New grain Mandi at KOta, Rajsthan. The PPF account has completed 16 years and i wish to close this account.
Can we get the amount accrued at the time of closure from a post office in Thane, maharastra or it would be disbursed from the original account holder post office branch.

sri December 6, 2010 at 7:26 PM

Hi,
Can I open a PPF account in SBI and give that account as my PF account for my current working company and ex-compnay to use it as my PF account, as I heard.

M P BHUKTIAR December 24, 2010 at 9:01 PM

Dear Ajay,
Refer to your querry as under.
I wish to clarify that the total deposit in one individual and minor accounts held under his guardianship can not exceed Rs.70000/- in one financial year. Even if it is gift to minor son or any other deposit. The PPF Rules do not permit the same. The Adult members can have their own individual accounts. So wife can have her seperate account. Since the Govt Income Tax Law exemption under PPF under 80C is maximum upto Rs.70000/-, it is my presuption that an individual can not claim more from deposits in PPF of his/her spouse. M P Bhuktiar
Ajay July 9, 2010 at 4:03 PM
@M P BHUKTIAR
What you mean to say that a person cannot deposit more that 70k in all 3 accounts (his, his wife’s and child’s account) put together ?
What if one wants to gift 70k to his child and deposit that amount in PPF account in the child’s name, does the sam to his wife’s account and he can deposit 70k in his account. But he does not want take the tax advantage (or rather the govt does not allow). Can one do this ?

Pia January 6, 2011 at 1:34 PM

if i have opened my PPF account in Oct 2010 and already deposited 35k in it… how is the financial year considered?? does it mean that i can deposit 70k till March 2011… or is it the maximum amount in a period of 1 year (i.e. from Oct 2010 till Sep 2011)…..

does it mean max 70k in one financial year (march- april) or what??? please clarify

Tarsem January 10, 2011 at 7:59 PM

My friend got opened a p.p.f. account in post office and deposited Rs 5000 first time in 1995, next year he deposited only 1500 in this account and no payment/subscription was made thereafter till today. Now after completion of period of 15 years, what amount is returnable to him ?

Mirza Vilayat Ali January 25, 2011 at 9:33 PM

My P.P.F A/c with State Bank Of India Matured on 31st March 2007. I have not closed this account nor extended for further five years. As such I am not making any contributions in it. I have got Interest credited to the account till 31/03/2010. Please let me know whether I can keep it open for further five years and earn yearly interest on it. Your reply may be sent to my aforesaid e-mail address.

SHASHI KANT PAUL March 8, 2011 at 11:27 PM

i have opened PPF a/c in the SBI bank. Iwant to know that its annually return is simple interest or compound interest like in Goverment Provient Fund.

m.s.r.h.prasad March 15, 2011 at 10:22 AM

Good Day.
Dear Mr.Vinay Ji.

I am just crossed 39th. I am a private employee. have two children son is 7th std and Daughter 2nd std.

Now I have got a call from Kotak Mahindra for ppf scheme they advised me to deposit Rs.3000 per month intrest rate is 12% pa…this is 15 years plan.
But I feel ppf account is in some Nationalezed Banks i.e State Bank of India or Postal Dept are safe..

Kindly advise me which is best option, I prefer safe investment…only…

If I start PPF account in April’2011 after 15years how much amount I can expect…any rough idea please.

Thanks,
prasad

Jayaprakash March 18, 2011 at 3:48 PM

I think calculation you have done in the attached excel sheet is incorrect. It is compounding interest at monthly but PPF account interest is compounded annually.

Am I reading something wrong here?

Shridhar Samala April 4, 2011 at 2:39 PM

Hi All,

Please answer my query on High Priority. I am planning to invest some money for my future, so i have done some research on investments. I liked two schemes one is PPF which is safe and gives good returns and other is LIC Jeevan Saral policy which also gives good returns

Comparing these two policies, i just came to know that if a person invest rupees 6000 per month in PPF or in LIC Jeevan Saral policy. PPF returns amount @ 21 lakhs, where as LIC Jeevan saral policy returns 26 lakhs + Free insurance.

1. Can any body tell me which is the best scheme for future (for children education)?
2. If i go with PPF, what are the benefits?
3. If i go with LIC Jeevan Saral policy, what are the benefits?
My aim is to get maximum amt after 15 years and it should be safe and secure.

Please answer to my queries at the earliest, since i have to submit the investment declaration and reply me through email, it will be highly appreciable.

Thanks & Regards,
Shridhar Samala

Mihir May 5, 2011 at 10:23 PM

I have a query. Suppose I invest on the 6th of any month (Or any date after the 5th of current month) then will invested amount earn interest for that month? As lowest balance from 5th of that month will be Zero, as on 5th of current month balance is zero.

sukumar k May 16, 2011 at 12:52 PM

DEAR SIR
I am intersted to open an PPF A/C
so pls update the good policey scheems to my id
which gives nice returns to my future.

from
sukumar

Pravin June 16, 2011 at 9:45 PM

I ve PPF a/c in Postoffice. Can i transfer it to Bank of Maharashtra.

Sandip Singh July 1, 2011 at 9:14 AM

Is the PPF interest calculated on a monthly basis or annual basis.

Ahamed July 8, 2011 at 10:33 AM

When i opened PPF account i don’t have employers PF but now in my company they have opened Employers PF account for me. Whether i need to close the PPF? or continue the PPF?

Lakshmi July 16, 2011 at 9:48 PM

I want to close my PPF account. Now completed 4 years. Please guide me.

Ajit Kadle July 25, 2011 at 1:05 PM

What is the e-mail ID for PPF Commissioner please?

smartlala September 7, 2011 at 1:54 PM

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Arjun September 7, 2011 at 5:03 PM

Dear sir/madam, can u explain PPF vs LIC (Jeevan Saral), which is better and why?

sankar October 8, 2011 at 7:41 PM

Dear Sir/Madam,
can you please clarify the below questions…
1) is the interest for ppf is calculated for every month…or yearly
2) is it advantage for the beneficiary to pay amount month wise or yearly wise?
say 5000 per month or 50000 at the start of the financial year..
3) i am planning to pay 70000 at he start of financial year or it is advisable to mont wise.. which is beneficiary…

Thanks in advance

sankar October 8, 2011 at 7:41 PM

Dear Sir/Madam,
can you please clarify the below questions…
1) is the interest for ppf is calculated for every month…or yearly
2) is it advantage for the beneficiary to pay amount month wise or yearly wise?
say 5000 per month or 50000 at the start of the financial year..
3) i am planning to pay 70000 at he start of financial year or it is advisable to pay month wise.. which is beneficiary…

Thanks in advance

K SUBRAMANYA KUMAR October 17, 2011 at 5:34 PM

I have a PPF account in SBI. On completion of 15 years, I have given a letter for extension of the period of deposit in the month of December 2010 and also remitted certain amount to the account.
As of now, can I close the account and withdraw the entire balance to my credit with up to date interest.
Please clarify.
Thanks and Regards,

SUBRAMANYA KUMAR K

vijay October 31, 2011 at 12:09 PM

Hi,
I deposited rs.20k in sbi for ppf account….

i need to show this proof in my company for tax exemption how i can get the receipt… any idea…..

Rajesh November 15, 2011 at 12:42 PM

Max limit is now 1lakh and interest rate 8.6

v.narayanan November 30, 2011 at 4:05 PM

kindly clarify amount deposited by my wife in her PPF account during the financial year canbe claimed as a deduction in my tax account, and further my wife has not claimed in her income tax return in the relevant financial year.. pl send the reply

Deepak Bajpai January 6, 2012 at 7:30 PM

In PPF if i invest every year sum amount of 70000/- what woud be the return after maturity, kindly inform us.

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vijay February 14, 2012 at 8:52 PM

Hi

What if a PPF account holder dies after a year from the date of PPF accoung, is there any benefit for the nominees !

Thanks

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