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PPF calculator, interest rate & everything else

Introduction

This post tells you all about PPF. From opening a PPF account to PPF interest rate. We discuss the various featuress and then present a simple PPF Calculator for estimating maturity value. We conclude by discussing the merits of investing in PPF today.

What is PPF

PPF (Public Provident Fund) is a long term saving scheme framed under the PPF Act of 1968 [1] by Government of India. The objective of the scheme was to provide retirement security to self-employed individuals and workers in the unorganized sector. PPF has since become an attractive investment avenue for individuals, both in the unorganized as well as organized sector, as it combines decent fixed rate of returns along with income tax benefits.

How to open a PPF account

You can open PPF account in Post Office, Public Banks and select Private Bank branches. You need to submit duly filled Registration Form, Proof of Identity, Proof of Residence and couple of photographs.

The minimum investment is Rs 500 and the maximum investment is Rs 1,50,000 in any financial year. You can invest lump-sum amount, or in instalments not exceeding 12 per year. Pay in cash, crossed cheque, online, etc.

Eligibility criteria

You need to be a resident Indian in order to be eligible.

NRIs are ineligible, although pre-existing PPF accounts can be maintained till maturity on non-repatriable basis.

You are permitted to have only one PPF account at any point in time.

There is no age limit for investing; parent or guardian can open accounts for minors.

You can not open joint accounts.

PPF interest rate

The current interest rate on PPF is 7.6%, compounded annually.  PPF Interest rate has steadily declined over the years.

PeriodInterest Rate p.a.
01 Apr 1986 – 14 Jan 200012.00%
15 Jan 2000 – 28 Feb 200111.00%
01 Mar 2001 – 28 Feb 20029.50%
01 Mar 2002 – 28 Feb 20039.00%
01 Mar 2003 – 30 Nov 20118.00%
01 Dec 2011 – 31 Mar 20128.60%
01 Apr 2012 – 31 Mar 20138.80%
01 Apr 2013 – 31 Mar 20168.70%
01 Apr 2016 –  30 Sep 20168.10%
01 Oct 2016 – 31 Mar 20178.00%
01 Apr 2017 – 30 Jun 20177.90%
01 Jul 2017 – 30 Sep 20177.80%

 

Tax & Other Benefits

Investments in PPF enjoy exemption under section 80(C) of Income Tax Act. PPF deposits fall under Exempt-Exempt-Exempt (EEE) category, i.e. investments, interest and maturity are ALL exempt from income tax.

Other benefits

PPF money cannot be attached by the order of a court to any debt or liability you may have.

PF offers loans against the account for specific occasions such as a wedding in the family, further studies of your children, etc. You can avail loans from 3rd year of opening the PPF account upto the 6th year. From 7th year onwards can make partial withdrawals.

Liquidity & Withdrawals

PPF accounts have a lock-in period of 15 years. Although, partial withdrawals are permitted from 6th year onwards.

After the expiry of the 5th year from the date of subscription, you are eligible to withdraw an amount of not more than 50% of the previous year’s balance or of the 4th year immediately preceding the year of withdrawal, whichever is less.

Thereafter, you can make one withdrawal per year.

So, for example, if you opened your PPF account on April 1, 2014, you can make your first withdrawal after April 1, 2020, and the amount of withdrawal will be limited to 50% of the balance as on – March 31, 2016, or the balance as on – March 31, 2019, whichever is less.

Maturity

On maturity, you have the following choices:

1. Withdraw entire money. The maturity value is exempt from tax.
2. Extend your account by a block of 5 years. In this case you can further opt for any one of the following:  a) extend by making fresh contribution, b. extend after withdrawing upto 60% of the account balance, or c. extend without making contribution or withdrawals.

PPF calculator

You can calculate the Maturity Value of PPF by using a concept called Future Value of Annuity. For those who are not familiar with the concept, we have developed a very simple calculator which can be downloaded for use. You only need to enter the value of fixed annual investment.

Assuming you invest Rs. 100,000 per year (Beginning of the year) for 15 years, at an interest rate of 7.6%, your total value at maturity will be Rs 28,32,193.

PPF calculator

Download PPF Calculator FREE!
[wysija_form id=”4″]

Interest is calculated for the calendar month on the lowest balance at credit of your PPF account, between the close of the 5th day and the end of the month, and is credited at the end of every year. Thus, the best time to invest is between the 1st and the 5th of any month, preferably April each year.

Conclusion

PPF offers relatively high inflation adjusted returns, combined with best form of income tax exemptions (EEE) and other benefits such as loan, partial withdrawals, etc. The original goal of PPF was to provide retirement benefits to unorganized sector employees. To that extent it continues to remain a very attractive scheme. As an alternative investment instrument however, it can be limiting, particularly for HNI investors. It was never intended for that purpose. Limitations include ceiling of maximum 1.5L investment per year and poor liquidity. Add to that the steady decline in interest rates from 12% in January 2000 to 7.6% in March 2018, what you have is a scheme that may not see meaningful allocation in portfolios of HNI investors today.

 

1. PPF Act, 1968

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