Public Provident Fund Your Long Term Investment Option

Submitted by: Harshamaitra Maitra

Public Provident Fund is commonly known as PPF and this account can be opened anytime during the year. This plan is taken up by those who are looking for a long term investment plan. You get a fixed income security that is government guaranteed with yearly subscriptions as little as Rs.500. PPF is known to be one of the most safe investments in this nation. With a PPF account, you can actually earn interest on the interest earned on the money you have put in the account! PPF is more popular because not only is it a savings account but also a tax saving instrument.

The account for PPF can be opened by you in your name or on behalf of a minor for whom you are a guardian. You can open this account at designated post offices anywhere in the country, also the same can be done at branches of Public sector banks anywhere in the country. Deposits have to be made in this account in every financial year otherwise your account will be discontinued. However, you can activate the account again by payment of the minimum deposit of Rs.500 and the default Rs.50. You cannot close the PPF prematurely except in the case of death. Even your legal heir cannot continue the account. Prematurely withdrawing money is allowed after the 7th year to a limit of 50%. After that you can withdraw money every year. A rate of interest of 8% is compounded every year.

The tax deductions can be gotten under the section 80 C on the income tax act. The interest on the deposits made is totally tax free. The deposits are also exempt from wealth tax. Hence this account is very beneficial for small investors. There was a recent increase of the limit and an increase in the interest rates i.e. from the previous 8% to 8.6%. This has made the PPF account all the more popular. In fact with the increase in interest rates, the biggest beneficiary is PPF investors.

Also, you can now invest up to Rs.1 Lakh instead of the previous Rs.70, 000. Thus, you get an additional tax free interest of Rs.2,580. The minimum deposit amount is Rs.500. Suppose you invest a total of Rs.1 Lakh every year, you can build a tax free total of about thirty one lakhs over a period of 15 years. This, however, can take place only in case the interest rate does remain at 8.6%. Even if it does change, the corpus will still lie in the range of twenty nine lakhs and thirty two lakhs. You can also avail a deduction of income tax for Rs.30,000 if you invest One Lakh Rupees and fall under the 30% tax bracket.

Your deposits to the account can be in lump sums or in instalments. There can only be twelve instalments in a year though. You can also transfer your PPF account from one branch of a bank to another branch or from one post office to another. Also keep in mind that an NRI cannot open a PPF account.

About the Author: maitra is working as manger in Private bank. she helps customer by giving her suggestion. To Get More Information about Axis Bank Home Loan click on the link

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