 MBA 7 PPF  Prashant S Sawant

PPF act 1968  Public Provident Fund  GOI wanted people to have some money for their old age.  The scheme is attractive because… 1. Tax deductions at the time of investment 2. Tax free returns 3. Complete security of the investment

PPF Concept  Bank asks you to do RD every year & gives you money after 15 years, would you do it ?  No  Why PPF ???  Lock in ensures money at the right time.  No age limit ( Minor also is ok)  Ac can be opened with Rs 100/-  Minimum investment ?  Rs 500/-  Upper limit ?  Rs 1.50 L

PPF Concept  PPF has _______% interest payout.  8.7%  Rs 6k py  Rs /-  ROI , 8.8% pa  ROI changes every year. When it is announced ?  Before the beginning of that FY  Difference between NSC / POMIS & PPF ?  Yearly investments  ROI is valid for that year only.

PPF  GOI updates ROI depending on prevailing economic conditions  Hence ROI will be always around market rate  ROI is dynamic hence no guarantee of the maturity amount  Objective of investment ???

Points to note  Interest on PPF Account is computed on a monthly basis depending on lowest balance in your account between 5th and end of the month. Therefore, if you don’t deposit any additional amount in your PPF Account before 5th of the month, you wont be earning any interest on such additional amount.  Therefore, it is always advisable to make all additional deposits before the 5th of every month so as to earn maximum interest on such additional amount.

Points to note.. contd  The ideal way to earn the maximum possible interest on PPF account would be to deposit Rs 1.5 Lakh before 5th April so that you can earn interest on the whole 1.5 lakh for the complete financial year.  In case you intent to deposit small amounts every year, try to do the same before 5th of the calender month.  To explain in figures, if you deposit Rs. 10,000 before the 5th of every month for the next 10 months, you would earn Rs. 75 extra per month which would lead to Rs. 750 every year. If this amount is deposited after 5th, you won’t be able to earn this additional PPF interest.

PPF  Flexibility  PW possible after ____ yrs  5 ?  How much can be withdrawn ?  50% of the balance in your ac at the end of 4 th year or amount at the end of previous year, whichever is lower.  FY ac. Withdrawal possible year ?  FY  50% of balance on _____ ?  Thereafter 1 withdrawal every year is allowed  Amount withdrawn need not be repaid  Carries no penalty  Balance amount continues to carry the same ROI.

PPF Loan  Loan : In or after 3 rd year till __ years. 55  Loan : 25% of the balance in your ac at the end of 2nd financial year  Loan : 25% of the balance in your ac at the end of 3rd financial year, if loan taken in 4th year.  Loan is repaid in 3 years by paying an additional interest of 1% py.  If unable to pay, the interest of 6%py is levied on the outstanding amount.

PPF Loan  Loans can be availed from the 3rd financial year.  Amount of such loans must not exceed 25 percent of the amount that stood to the account holder’s credit at the end of the second year.  A fresh loan is not allowed when a previous loan or interest is outstanding.  Interest Rate is 1% if repaid within 36 months and at 6% on the outstanding loan after 36 months. The repayment may be made either lump-sum or in installments.

PPF  80 c benefit  Flexibility  On maturity, investment + Interest (tax free)  Freedom to invest at our own pace  Can pay Rs 500/- one month, Rs 2o0o/- next month, Nil next month or lump sum once a year  Min Rs 500/- py reqd to keep the account active  If missed one year ?  Next year Rs 50/- penalty to reactivate the ac.

PPF  At the end of 15 years, withdraw all amount  Or extend it indefinitely in blocks of 5 years at a time  Extension can be made with or without making deposits.  If you choose to deposit, Form “H” needs to be filled within 1 year from the end of the maturity period.  If form “H” not filled, ac will by default be “ac without deposits”.  Same investment limits apply.  Min ? Max ?  500 & 1.50 L  Can also withdraw up to 60% of the amount present at the start of renewal period.  Once a year withdrawal is possible in 5 years.

PPF  If the amount in your ac at the end of 15 yrs is Rs 10 L.  Can withdraw total Rs 6 Lakhs  In 5 installments in 5 years period  Only 1 withdrawal per year.  If PPF is extended without fresh deposits, no limit to the amount you can withdraw.  But only once every year.

How to invest ?  Can open the ac at any PO or PSB or even some pvt banks approved by GOI.  Max Rs 1.5 L & Min Rs 500/-  No age limit for opening an ac  Can open in the name of minor  Can invest any amount from Rs 500/- to Rs 1.50L in multiples of Rs 5.  Rs 555, Rs 550 but not Rs 552/-

Points to consider before investing  What is your financial goal 15 years down the line ?  Good for younger generation  Can you afford not to withdraw the money for ___ years after opening the ac. 55

Advantages  80C  Ac can be opened for the youngest member of the family.  Can make multiple deposits ( up to 12) in a year  Around 50% of your deposits can be withdrawn after 5 years without any penalty.  Tax free maturity

Disadvantages  Lock-in period of 15 years  Interest rate can vary every year  ROI can go below than the ROI you had initially invested at.  Only 1 ac per person

Investment meter  Safety  *****  Liquidity  **  Returns  ****

Tax impact  80C : Rs 1.50 L  Maturity tax free  charteredclub

 Thank you.  Prashant Sawant   Global training group