Jagoinvestor
August 5, 2009
Why to open a PPF account in India
PPF i.e. Public provident fund is the most recommended long term investment tool offered by Central government of India for Indian resident employees.
In this article we will see why one should open a PPF account even if one does not need it or have no intention of putting his money in Debt.
It may look idiotic but we will see why it would make sense. We will also see an example which will help you understand things.
But may be you don’t know what is PPF account? you will say. Click here to Understand what is PPF account.
Lets see in detail:
Imagine a situation, you need to invest your money in some debt product which gives you assured and good returns, but you don’t want it to get locked for long period, the maximum you want is 3-4 yrs of lock in. Is it possible right now is the question you need to ask? NO!! is the Answer
- If you invest in PPF right now, the money will be locked in for 15 yrs (partial withdrawals allowed)
- If you invest in NSC it will be locked for 6 yrs but the interest would be taxable and hence your post-tax returns are again very less
- Fixed Deposits are again not helpful because their post-tax returns are not attractive enough. Even if you Choose the best Fixed Deposit it won’t help
- Debt funds are again not answer because again the post-tax returns are less
So how does opening a PPF account now helps us?
Well, definitely it can’t help us at this moment, But imagine future let’s say after 11 or 12 yrs you need to invest some money for short term; at that time, you can put money in your PPF account and it will get matured in next 3-4 yrs and whole maturity amount would be Tax-free and earn you interest of 8%.
It costs just Rs. 500 per year for PPF account to stay active. So if you need the PPF account right now, then open it NOW and if you don’t need it right now, still open one NOW so that your Loan-in-period goes down by 1 every year.
Also, once in a while whenever you feel that you need your money to go in Debt component, simply use the PPF.
Read an article on Asset Allocation to understand the good mix of Equity and Debt Component.
So, here is what I suggest: Open PPF accounts in your name, your Spouse name and your Children name at interval of 2-3 years. So, after 12-13 years, each of the PPF accounts will mature in a gap of 2-3 years.
You can use this as an investment product that gives 8% assured tax free returns. 🙂
Please comment to let me know your views. Is there any issues involved with this article content? Is there anything I have not covered? Your comments are valuable.
Hi Manish,
I have a ppf account opened in Feb 2006, I would like to go for a partial withdrawal from my PPF account. How it affects the matured amount after 15 years .
Vineet
THere is no effect on maturity due to this
Hi – I have a query .
Can I open a PPF account now within 31 March 2016 to avail 8.70 % interest .After 1 April 2016 , it will be 8.10 % interest. Please advise
It does not work like that. PPF interest is calculated on monthly basis. So you cant lock in the particular rate !
What happenes if you skip 500 Rs payment for a year?
Nothing . Next year you pay the penalty of Rs 50 along with past minimum Rs 500 and continue !
i want to know if i open PPF account and pay money by ECS per Month Rs.2000 how interest will calculate at end of the year.
Check this – http://jagoinvestor.dev.diginnovators.site/2012/02/how-ppf-interest-is-calculated-video.html
I want to open my ppf a/c in sbi. Can I open my a/c bcz I am not in any service. And plz clear me that deposit amount is fixed or variable as wish of depositor, i. e. If I deposit 5000 in one year then can l change this amount in next year or not. Thank you!
PPF can be opened by anyone, if they are in service or not . Does not matter. and you can keep it variable as per your wish
I have opened PPF account when my son was minor. And I am natural guardian that time. Now after maturity how can we handle the account?
He will have to go to handle the account now if he is mature !
I had made a PPF account in SBI Bank on 05-04-2014 with initial deposit of 10400/- and planning to deposit as much as possible before April. So what would be the interest gained till now and when will be the maturity date? Help me as i am new to PPF. Also can we transfer the amount through neft to a PPF account?
Sagar
you can transfer money to PPF using NEFT , read this – http://jagoinvestor.dev.diginnovators.site/2011/12/ppf-account-online-investing-netbanking.html
Interest on PPF calculation – http://jagoinvestor.dev.diginnovators.site/2012/02/how-ppf-interest-is-calculated-video.html
Maturity date on PPF – http://jagoinvestor.dev.diginnovators.site/2014/12/ppf-maturity-date-calculation.html
You can get some more insights through my blog post……
http://iasdreamz.com/15-facts-you-should-know-before-investing-in-a-ppf-public-provident-fund-account/
Anyways well written post
Hi Manish Sir,
I have ICICI bank accnt but i want to open PPF accnt in SBI bank so i want to knowwhich one is better option for me??? whether i want to open saving accnt firstly in SBI bank to open PPF accnt in it later…pls help me…
You can open PPF in icici itself !
[…] Public Provident Fund (PPF) and the benefits of investing in the same. If not, here’s a nice article that you can read […]
Hi Manish,
I opened my PPF account on Dec 2001. Till which financial year (and month if applicable) can I keep on contributing without extension? And when (month and year) should I apply for the extension?
Thanks
On Mar 2017, it will mature .
Thank Manish. And when should I apply for the extension of the PPF account for continued contribution?
Once your 15 yr is complete , then apply for it
Hi mannish,
Lost the link where I put my original comment regarding opening PPF account for my daughter. Today I did it, they didn’t ask me any qns. However, I came across this page http://www.rbi.org.in/scripts/FAQView.aspx?Id=52
There is a note that NRIs can’t invest in PPF or small savings.. Wondering if a new rule has come.
Regards
Aparna
One cant open a new PPF account if they are NRI, but they can invest in their old PPF which they had opened earliar !
Hi Manish,
Please clarify this lunch hour ‘hot’ debate for me and my buddies 🙂
I am the only earning member in my family of 4. If I open 4 different PPF accounts for my family, I can invest upto Rs.1 lac per PPF account – that is, a total of Rs.4 lacs for the entire family. I know for a fact that interest is tax free for my investments into my PPF account to the extent of Rs.1 lac. What is the tax application for the remaining Rs. 3 lac investments made (by me) into the other 3 PPF accounts (Rs. 1 lac each)? If taxable, when does it become taxable (assuming 15 year lock-in period)?
You will get tax free maturity amount + interest at the end of 15 yrs out of all the 4 PPF accounts, but at the time of making payment you will get maximum 1 lac tax deduction in a year . I hope it answers your question ?
Hi Manish,
Thanks for the prompt reply. I have however been given a different view on this by different people. The view is that on the remaining 3 PPF accounts, interest at the time of maturity would NOT be tax-free (and hence taxable). Can you re-confirm?
Why not ? Any PPF maturity is tax free . I am very much sure, but better discuss it once on our forum – http://www.jagoinvestor.com/forum
Hi Manish,
i opened PPF account in may-2013. i did one mistake. i opened two account one for me and one for my wife on same day. just two days back i have read your blog and i came to know. it is better to open PPF account with 2-3 years duration. i understand the benifits of this.
what i can do now? at present i can’t afford to deposite big amount in both account. if i will not deposite big amount in starting years, after 15 year i will be loss because it compound interest. better deposite big amount in starting phase.
Can you give any suggetions?
I think you shoudl not worry much on this . Its fine if you have started on same day ! . For some years just deposit the minimum Rs 500 only and then increase it later !
Hi,
Thanks Manish for your replay, yes you are right, i can increase amount later but I have calculated. if we deposit high amount starting time 0 to 4 years, After 15 years we will get some big amount. the difference is not small amount.
when we open account, that day onwards they are calculating interest. am i right?
Is there any procedure like hold account, postpone in SBI PPF??
Yes, if its possible for you, always pay more and more in start .
Hi,
Manish, Thank for this article becasue of this i come to know the important of PPF A/C and i had open the PPF a/c in SBI Bank where i already have saving a/c also.
It takes me to 20 Minutes to open PPF a/c, you just need to provide pan card copy with PP size photo, and add proof. and when i returned to office and open the my internet banking i saw that my PPF A/C are showing in it as linked a/c. and you can transfer the money in Transfer fund option. no need to add ppf ac separtely. this is amzing service by SBI Bank.
Ones again thanks a lot.
Welcome !
Manish, Which one is good? Investing monthly or lumpsum investment yearly in PPF? I know that if we make lumpsum investment before 5th of April each year it ll get interest on whole year. But how about doing monthly investment? Please let me know your thoughts.
The more money you deposit in start, the better it is . but its not possible for everyone to deposit the full money in start , so do it if you have money else second best option is to deposit on monthly basis before 5th each month . Read more here – http://jagoinvestor.dev.diginnovators.site/2012/02/how-ppf-interest-is-calculated-video.html
Thank you !! I am doing monthly investments in PPF from one year.
I think we can do like dis: Invest in RD from April to March for one year lets say Apr 2013 to Mar 2014 and then invest this lumpsum amount in April 2015. This works good. We ll get interest on RD and can also invest this amount in PPF. What you say Manish?
small correction.. I meant to say investing d amount from RD in April 2014 not in April 2015.
But how does it help . If you directly invest in PPF each month, you anyways get all the interest also per month . I dont understand why do you want to do what you suggested, I hope you know how PPF interest is calculated – http://jagoinvestor.dev.diginnovators.site/2012/02/how-ppf-interest-is-calculated-video.html
Manish
if ppf a/c mature then again ppf a/c open or not?
Yes, you can open it again , but why to do that when you can continue it for next 5 yrs blocks ?
thx Mr. Chauhan sahib Ji
Manish,
Which one is better PIL or PPF as i am Govt. employee
What is PIL ?
Hi Friends,
I would like to understand the following, say example i have invested 15 lacs in a 15 years of time in PPF account, so after the maturity how much money in total i will receive?
Please give your answer for this
If you have invested 1 lac each year , then close to 35-40 lacs is possible
Thank you very much for your reply.
Regards,
M.Saravanan
Dear Munish Ji,
one of the LIC plan (Marriage & Education Endowment) table no-90 also gives you good return of 7.9% if you are under age 30, if you invest 44,930/- yearly for 21 years you will get rs: 24,15,906/- and it will also gives you accidental insurance,loan facility and moreover if proposal died in between all of the rest premiums are waived off.so,kindly suggest PPF is better than this.
Rgds
Ajay
You should decide if you need liquidity or not ? If NOT , then you can even consider this LIC plan
Dear Manish ji
I am not getting you can you plz expain.Ishall be very thankful to you.
Rgds
Ajay