Public Provident Fund (PPF) is one of the safest forms of investments, however much is not known how to make the best out of this excellent investment instruments. Most of the people just end up depositing funds into this instrument to save tax rather than using it as a crucial tool for their financial planning. Before I leak out these tips, I would first like if you could go via our article Public Provident Fund which details the essential aspects associated with PPF.
TIP 1 : 1 lac limit doesn’t mean Invest 1 lac
I come across with so many young professionals who haven’t yet opened a PPF account. The first step is to open a PPF account at the earliest. Considering the maximum amount which you can deposit in a PPF account is limited to Rs. 100,000, not many investors can deposit complete Rs. 1 lac in one year into a PPF account. Even if they could, it would form a material part of their savings. If you have a wife, then you would probably have 2 PPF accounts, hence increasing the maximum amount which you can deposit in a PPF account for the entire family to Rs. 2lac. The more family members you have, the more lacs you can invest into a PPF account. For example, if you are a family of 2 adult and 2 children, then you can have 4 PPF accounts and can deposit 2 x Rs. 1 lac = Rs. 2 lac per year into a PPF account. [Article updated based upon contribution by Ajay & Victor. Contribution to a minor’s account is subject to 1 lac limit of the parent).
Now, you may realise that if you are investing 2 lac into a PPF account, you would probably be left with almost nothing to invest in other asset classes such as Mutual Funds or Gold, etc. to enhance your overall portfolio return. On the contrary, if you are lucky enough whereby the maximum allowable amount for PPF deposit is not a material chunk of your saving, then go for the entire Rs. 1 lac deposit.
TIP 2 : Open PPF accounts for the Family over 2-3 years
The background behind this tip is – a PPF account has an initial maturity period of 15 years. After 15 years, you can extend a PPF account for a block period of 5 years till infinity. If you look closely into it, after 15 years, you would have an opportunity to encash the maturity proceeds after every 5 years. If you have a family of 4, instead of opening their PPF account all at once, you may want to open it within 1-4 years gap – ideally after every 2 years. You may be wondering what impact it may have. For this, I would like to draw your attention towards to the image below. You may notice that it reflects a situation for a family of 4 people. Each of the family member opened a PPF account in a gap of 2 years (2000, 2002, 2004 and 2006). After the initial maturity period of 15 years, each PPF account matures in next 5 years. In our example, the first PPF account matures in year 2014. Should you need the funds, you may choose to encash your PPF account. Else you may extend the PPF account for another 5 years. Hence after 2014, should you choose to extend the maturity of your PPF account for next 5 years, your family would have a choice after every 1-2 years to encash the maturity proceeds of the PPF account of any of the member of the family (reflect as Green in the cells). This empowers the family with tax free liquidity every other year.
TIP 3 : PPF is for Very Long Term – Longer the Better
PPF is a long term investment and banks upon the Power of Compounding – the more the number of years for which you invest into PPF, the better goes the returns. Take an ilustration in the table below which assumes an annual investment of Rs. 50K for 25 years at 8.5% interest. You would notice that in the last column, yield on the investment keeps on increasing each year from 8.5% in first year and reaches a blasting 28% in year 2025. It is not because the interest rate increased – which in fact is assumed to be stable at 8.5%. It is all owing to compounding effect whereby interest is paid on interest every year. To summarise – the longer you invest, the better would be the returns.
TIP 4. Monthly SIP into PPF
If you want best results out of investing into PPF account, invest into it on a monthly basis. PPF account limits a person to invest more than 12 installments in a year, hence investing into PPF via monthly ECS (just like a Mutual Fund SIP) is a best approach. This reduces the overhead to visit the bank in person to deposit the funds into your PPF account as well as inculcates a financial discipline to invest on a monthly basis. You would realise in no time that it would become a part of your monthly budget and habit which will give long term benefits. You don’t need to invest in a balanced mutual fund. Invest the debt component of your portfolio into PPF and avoid paying charges on your balanced funds.
And make sure that this investment into your PPF account is before 5th of the month. PPF account gives interest on minimum balance between 5th and end of the month. For example, if you had Rs. 3 lac in your PPF account on 1 Jan 2012 and you deposited Rs. 50K on 10th Jan. Your month end balance was Rs. 3.5 lac. You shall be provided interest on Rs. 3 lac for the month of January.
TIP 5. NRIs to open PPF before leaving India
If you would read our article Public Provident Fund, you would realise that NRIs can not open a PPF account. However, they can continue to invest into PPF account for the initial duration of the PPF account (15 years). Hence, if you are intending to leave India, you should open a PPF account before leaving India. After leaving India, NRIs can continue to invest into their PPF account on a non repatriable basis.
By now you would have realised that PPF as an instrument can give you best financial gains if you continue to invest into it for a long term and enjoy it’s tax free benefit which is largely dependent upon the power of compounding. At the same time, you would also want to consider that not all your savings should get parked into PPF and that you diversify your assets into a mix of assets which include Debt, Equity, Gold, etc. Happy Investing !
39 Replies to “Making The Most Out of PPF”
I have a query on the total amount that can be deposited in the PPF accounts for my wife and kid. This article says I can deposit 1L in each account. However when I spoke to the SBI staff they said I can deposit 1L total (i.e like 30k + 30k + 40k). Can you pls clarify.
I don’t think that SBI staff were correct. You can deposit 1L each for yourself, wife & Kid = 3L per year. The limit of 1L is not per family, but per person.
But looks like there has been a lot of confusion over this matter. Pls see the response given on the JI forum
Also another link from SBT. Pls see the last point towards the end of the page.
Rohan here… I dnt hv any words to explain this …just tell u Rapchik (Excellant) article…wow wow wow…
I got full information thru this blog sir … now today is 13 th August .. wen should i strat PPF a/c ..shall i wait till 1 st september or shall i open PPF A/C this month…
actually i wntd to start PPF a/c mntly Rs 1000… thn after two years i will again open PPF a/c of my wife..again after 2 years my son….according to abv information i realised PPF is in top of debt fund….
Is it gud idea sir ..waiting for ur reply sir …
God bless u …keep it up Banyan Team…..
You can open your PPF account any time, however, try to deposit funds before 5th of every month. Thanks for your appreciation.
Ok .Thnx sir .I Will follow ur instruction….keep it up…
I agree with Ajay.
Tip 1 is totally wrong. Kindly note “The ceiling on deposits as provided for by Central Government from time to time, which is Rs.1,00,000/- in a financial year at present, is both for individual self account and account(s) opened on behalf of minor(s) of whom he is the guardian, taken together.”
Appreciate if you can update your article.
You and Ajay are right. Thanks for suggesting the correction.
i have a query on the total amount that can be deposited into the PPF a/c for a family of 4 members.husband,wife and 2 minor child,can 1 lac be deposied in all the 4 accounts. total deposit 4 lacs per year or it has to be 2 lacs per year. i was informed by UBI that a parent and child account is clubbed for the deposit of 1 lacs per annum.i.e. husband+2 minor child total deposit should be 1 lac per annum and wife 1 lac per annum.pls clarify.
Minor’s don’t have a seperate 1 lac investment limit. So in your case it will be 1 lac for you and 1 lac for your wife.
Thank you for valuable information above.However, I have query on having PPF accounts by two individuals of a family. Whether , Me and my wife can have two seperate PPF accounts contributing 1 lac each individually ( Myself contributing 1 lac and my wife for her account 1 lac totalling to 2 lac’s for annum )? Also what would be maximum returns after 15years, if we both start depositing 1 lac each at end of maturity period of 15 years ? . Could you please help us with detail. Appreciate your fast response.
You would notice that in Tip 1 I have mentioned that you and your wife can both invest Rs. 1 lac each – i.e. Rs. 2 lac p.a.
Illustration on Rs. 50 K for 25 years are in Tip 3. If you invest Rs. 1 lac at the start of the year (assuming PPF rates are 8.5%), then after 15 years you would have invested 15 lacs per person and the maturity amount would be around Rs. 33 lacs per person.
Can I take a loan on PPF account. I am operating ppf account with SBI for the past 9 years. How much amount i can take loan and what will be the interest rate.
thanks, regards, Babu
In continuation to my above question, can i take partial withdrawal from the account.
Which one is better partial withdrawal or loan?
thanks, regards, Babu
Your questions are answered at http://insight.banyanfa.com/public-provident-fund-ppf
investing from which month, so that i can show in tax deductions
From 1 Apri of the year to 31 March of next year.
My mother opened her PPF account with the Punjab National Bank. The 15 year tenure for the PPF account will get over in 2014. She would like to continue putting money in her account in future also. My question is – once the 15 year period is over can she transfer her account to a different bank, say SBI or ICICI? If yes, would that mean she would give up her account with PnB and open a new one in SBI or ICICI or would it just be a mere transfer from one bank to another. Please help as your expertise would be highly appreciated.
You can transfer your mother’s PPF from one bank to another. I found the following instructions on ICICI bank’s website
As per the PPF scheme of the Government, subscribers can transfer their PPF account from one authorised bank or Post office to another. In such a case, the PPF account will be considered as a continuing account. To enable customers to transfer their existing PPF accounts to ICICI Bank, the following process must be followed.
– The customer approaches the bank or the Post office where his current PPF account is held and makes an application for transfer of PPF account to ICICI Bank’s branch.
– Once the application is processed, the existing bank/Post office arrange to send the original documents such as a certified copy of the account, the account opening application, nomination form, specimen signature etc. to ICICI Bank branch address provided by the customer, along with a cheque/DD for the outstanding balance in the PPF account.
Role of ICICI Bank Branch:
Once transfer in documents are received at ICICI Bank branch, customers are required to submit fresh PPF account opening form (Form A) and Nomination form (Form E/ Form F in case of change of nomination), along with their original passbook . Also customer is required to submit a fresh set of KYC documents.
i have opened PPF a/c in 2005. I have deposited money regularly for first 4 years. Last two years , I have not deposited any money. Can i start agian to deposite money and contineu my a/c? if not, how i can get money back?
You can reinstate your account by depositing minimum Rs. 500 per year plus Rs. 50 per year as a penalty. So in your case, you would have to deposit Rs. 500 x 2 plus Rs. 50 x 2 = Rs. 1100.
What if I deposit 60000 in April rather then doing 5000 per month.How much difference would be in the amount at the end of next year ?
ABOVE GIVEN INTEREST IS CURRENTLY IMPLEMENTED OR NOT ..BEZ IT IMAGING..RATE OF INTEREST..!
Nagendra, if you deposit 60K at the start of the year, you will earn more interest compared to 5K every month. The point of depositing 5K every month is to have a disciplined approach towards investing and incorporating investing as a part of monthly budgets.
Thanks for your advise, you guys are really working great.
I opened a PPF account in Dec 2010, but invested only around 4k till now. Three years gone. Did a calculation and found out that even if I invest the entire 1 lac for the next 12 years, the amount will be around 8 lacs lesser than what I would get had I invested properly in the first three years + 1 lac per year for the next 12 years.
Please advice whether I should continue to invest in PPF for the next 12 years or look for other tax saving instruments.
Don’t regret about loosing 3 years. PPF accounts can be renewed after 15 years for 5 years on an indefinite basis. Hence you could continue to invest on an ongoing basis.
After opening of PPF, For how many years it is mandatory to put a minimum amount of money , Is it 5 yrs or 15 Yrs?
It is 15 years. After 15 years you have an option to extend the PPF maturity by 5 years. As long as your PPF account is continuing, you would need to deposit the minimum amount every year.
Thanks for the nice post…
If we are opening a PPF account and planning to invest 1 L per year than what should be the right time to deposit the amount to get complete interest in every year?
Yash, you should deposit before April 5th to get the max benefits.
If I invest one lack rupees on 2nd April in PPF at one shot every year will i get more interest or investing every month will be equivalent.
Ideally the earlier you invest into PPF, the more interest your PPF account will earn by end of the year. But PPF is a very long term investment where you are talking for over 15 years. You may want to invest in lumpsum at the start of the year or follow a more disciplined approach via monthly investments.
Hi excellent information .thank you
Want to know if we can get the account statement from the bank for the of account??
So as to get the details of the transactions done till the date.
Yes you can get an account statement from your bank.
how many times in a month one can make a deposit into PPF
I dont think that there is any limit on the number of deposits you can make into a PPF account.
best article on ppf , thanks a lot