How to make the best use of public provident funds

PPF: How to make the best use of public provident funds

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If you put your money in the PPF account before this date of every month, your contribution will also fetch interest for that month.

Public Provident Fund (PPF), a government-backed small savings scheme run by the Ministry of Communications, can be monitored for regular deposits. Experts say the scheme’s popularity as an investment option other than its tax benefit is because it can be started with a minimum investment amount.

Along with the safe and secure nature of this investment, the triple tax break – EEE (exemption, exemption, exemption) also lures investors for the scheme.

The exact figures fluctuate even though The PPF returns convincingly every year. The interest on PPF increases annually and is credited to the depositor’s account on March 31 every year. It is calculated every month even though it is credited to the interest account on the last day of the financial year. Note that interest is payable for one month only if deposited on the 5th of that month. So, under the PPF scheme, interest is calculated every month, compounded annually, and reset every quarter.

The catch about PPF is that it comes with a lock-in period of 15 years. The date of maturity while calculating the tenure has not been calculated from the date of opening of the account. Instead it is calculated from the end of the financial year in which the deposit was made, whether the account was opened for the month or date, so, it is actually 16 years.

The investor can avail deduction of up to Rs 1.5 lakh under Section 80C of the I-T Act, and there is no need to pay tax on the share of income equal to the amount invested. Further, the investor does not have to pay tax on the returns received during the accumulated phase or at the time of withdrawal.

Here’s how you can get the best out of your PPF account:

Industry experts say one should use their PPF account as a retirement savings tool or for other long term goals like higher education of the child, child marriage, starting a business etc. Just aim it towards the goal, keep in mind the long term perspective.

Under Section 80C, an account can be invested in a minimum of Rs. 500 to a maximum of Rs. 1.5 lakh per year. An investor with a long term goal should deposit a maximum amount of Rs 1.5 lakh per year – if it fits their asset allocation and long term goals.

If you are depositing Rs 1.5 lakh at a time, try depositing it in the first month of the financial year i.e. april and before 5th. It is worth noting that interest is calculated on the lowest balance between 5 and last day of every month. So, if you put your money in the PPF account before the 5th of every month, your contribution will also fetch interest for that month.

Further, if you are unable to put a large amount at the same time, you can put the money in 12 instalments, requiring each monthly investment of at least Rs 500. In this case, do your best to put your money in the PPF account before the 5th of that month.

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