Ten things you should know about your public provident fund

The best gift you could give yourself this coming New Year probably is a public provident fund (PPF) account. Simply put, a PPF account is a fixed income security guaranteed by the government. It’s one of the best financial instruments’ you can invest in. And, if you already have a PPF account, there is no harm in knowing the finer details. For instance, you can actually take a loan against your PPF and the like. To know more, read on.

Where: You can open a PPF account at your local post office, State Bank of India and its subsidiaries, as well as private sector banks like ICICI Bank.

Number: You can open only one PPF account at a time. There is an exception to this provided you are opening the second account on behalf of a minor. But, both parents cannot open a PPF on behalf of the same minor.

Amounts: You can invest a minimum amount of Rs 500 to a maximum of Rs 1 lakh in a financial year. You can make this payment as a bullet payment or in a maximum of 12 transactions.

Keep in mind that you have to deposit at least Rs 500per financial year. If you fail to do so, you will be fined with a default charge of Rs 50.

Interest: The rate of interest is reviewed every year and is subject to change.As of now, the rate is 8.8 percent compounded annually.

**Tenure:**You will have to be invested in the account for 15 years and premature closure is not permitted. Once you are done with 15 years, you can withdraw the funds (principal and interest earned) and close the account. Only in case of your death, can your legal heirs close the account. To close the account, there are few formalities to be followed.

**Extension:**After 15 years,you are allowed to extend the tenure any number of time, but only for blocks of five years.

How to get an extension: To get an extension, you have to apply by filling “H” form within one year from the date of maturity of the account. The from is availableat the bank or post office or even online.

Partial Withdrawals: Though you are pretty much locked in the account for 15 years, it does not mean you cannot make withdrawals. You are permitted to make one partial withdraw per financial year, provided certain conditions are met. To know how more about the withdrawal amount you can use PPF withdrawal calculators available online.

Loan: You also get a loan facility which you can avail between third financial year and sixth financial year. That is, from the third financial year up to end of fifth financial year. For instance, if you opened your PPF account on January, 1, 2007 you are permitted to avail a loan between April 1, 2010 and March 31, 2012. Keep in mind that you get 36 months to repay the loan. You will also have to pay interest for the loan, depending on how much principal amount your have repaid and how you pay it. The interest will be in the range of 2-6 percent per annum. You can avail of loan up to 25 percent of the amount in the account at the end of the second year immediately preceding the year in which the loan is applied for.

Tax: This is a tax saving instrument under section 80 C on the Indian Income Tax Act. And, works as one of the best tools for tax planning purpose.

Financial Planners over the years have strongly recommended their investors to open and maintain PPF accounts. In fact, most planners say that it’s best to make maximum investment in the PPF. After all, the return of around 8 percent you get is tax free, that too at low risk.

PS: Now that you know about PPF, make the most of this information. And keep tracking this space to know how you can transfer your existing PPF with a PSU bank and local post office to a private sector bank.