PPF: 7 Things You Should Know About Public Provident Fund
Interest rates of small savings schemes have not been changed. In the fixed income space, the PPF rate is one of the highest. Here are a few things to know about this scheme.1. Interest rate is assured but not fixedThe interest rate offered on the PPF is not fixed but it is linked to the 10-year government bond yield. The rate doesn’t change on a day-to-day basis but is fixed at the beginning of a quarter based on the average bond yield in the previous three months.
2. Tenure can be extendedA PPF account matures in 15 years. After the account matures, you can either withdraw the entire balance and close the account or extend it for five years with or without making further contributions. The extension in blocks of fi ve years can be done indefinitely.
If you want to continue the account and also contribute, you have to submit an application to the Post Office or bank before the end of one year of maturity. The account will then get extended for five years.
If you do not inform the bank or Post Office, the account is automatically extended. But it will not accept contributions. The balance keeps earning the normal interest and you can make only withdrawal in a financial year.
5. Interest is calculated before 5th of monthPPF interest is compounded annually but the calculation is done every month. The interest is on the lowest balance between the 5th and last day of every month. If you invest before the 5th, the contribution will earn interest for that month too. Otherwise, it’s like an interest-free loan to the government for a month. If you are investing through a cheque, make sure you deposit it at least 3-4 days before the cut-off date. If your bank is lethargic in crediting the amount to your PPF account, your investment might miss the deadline.6. Loaded with tax benefits
7. Additional tax benefits of PPFOpen a PPF account in the name of your spouse or child to gain additional tax benefi ts. As per tax laws, if money gifted to a spouse is invested, income from investment is clubbed with that of giver. Since PPF income is tax free, it does not push up tax liability of giver. So one can invest up to Rs 1.5 lakh a year in this tax-free haven.
Source : Economic Times