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• The government recently announced many changes in PPF rules for benefit of account holders
• New PPF rules relate to deposits, loans and premature withdrawal

The government recently notified new rules for public provident funds or PPF accounts for the benefit of account holders. PPF is one of the most popular small savings schemes and it offers a guaranteed return.

PPF accounts have a maturity period of 15 years and the government announces interest rates for each quarter. For the current quarter, PPF fetches interest rate of 7.9% per annum.

Interest is calculated for a calendar month on the lowest balance at the credit of an account between the close of the fifth day and the end of the month. Interest is credited to the account at the end of each year.

New PPF rules explained in 5 points

1. According to new PPF deposit rules, an account holder can make deposits in multiples of ₹50 any number of times in a financial year, with a maximum of a combined deposit of ₹1.5 lakh a year. Earlier, a maximum of 12 deposits were permitted in a period of 1 year.

2. The government allows premature closure of PPF account only under specific circumstances only after five years after account opening. Under current rules, premature closure is allowed for (i)treatment of life threatening disease of the account holder, his spouse or dependent children or parents, on production of supporting documents and medical reports confirming such disease from treating medical authority and (ii)higher education of the account holder, or dependent children on production of documents and fee bills in confirmation of admission in a recognised institute of higher education in India or abroad. Now, the government has added one more criteria for premature closure of PPF account: On change in residency status of the account holder on production of copy of passport and visa or income tax return.
   It is to be noted that in case of premature closure of PPF accounts, the account holder gets 1% lower interest than the rate at which interest has been credited to the account.

3. An account holder can take loans from PPF accounts. Under the new rules, the rates at which the account holder can borrow from his account has been reduced to 1% above the prevailing PPF interest rate, from 2% earlier. In case of death of the account holder, the nominee or legal heir shall be liable to pay interest on the loan availed by the account holder but not repaid before his death. Such amount of due interest shall be adjusted at the time of final closure of the account.

4. In addition, the Department of Post, through a notification dated December 2, has allowed deposit of post office savings account cheque of any amount into your PPF account, subject to overall limit, at any non-home post office branch. The earlier limit was ₹25,000. The same rule applies for post office recurring deposit, PPF and Sukanya Samriddhi accounts.

5. “AII POSB cheques issued by any CBS Post Office, if presented at any CBS Post Office should be treated as at par cheques and should not be sent for clearing. POSB cheque can be accepted at other SOLs or service outlets ( without restriction of amount, for credit in POSB/RD/PPF/SSA accounts, subject to the limits, if any, prescribed in the scheme,” says the notification.

Source: livemint.com

Public Provident Fund(PPF), which is a voluntary deposit as opposed to employee provident fund, will earn 8% for this quarter. Investors without risk profile for stock markets, mutual funds, Unit Linked Insurance Plan (ULIP), invest money either in Bonds, Fixed Deposits or PPF.

PPF comes handy for investors who are looking for long term investment and income tax benefits. Also PPF Account creates a physiological pressure to save money every year and invest some amount in it.

Interest: Interest at the rate, notified by the Central Government in official gazette from time to time, shall be allowed for calendar month on the lowest balance at credit of an account between the close of the fifth day and the end of the month and shall be credited to the account at the end of each year.

Continuation of account with deposits after maturity: Subject  to certain provisions a subscriber may, on the expiry of 15 years from  the end  of the year in which  the initial subscription was made  but before  the expiry of one year thereafter, may exercise an option with the Accounts Office in  Form H,  or as near thereto as possible, the investor would continue to subscribe  for a  further block period  of 5 years according to the  limits of subscription specified.

Key differences between Fixed Deposit and Public Provident Fund :

In addition, the rate of return on small savings schemes that will be notified will be for the full financial year, while bank deposit rates are expected to come down with the Reserve Bank of India widely predicted to begin the rate cut cycle. Even before lending rates come down, banks will start pruning returns on deposits to lower their cost of funds.

Interest is calculated on lowest balance: Interest is calculated on the lowest balance between the fifth and the last day of the month of March.

Let’s say you have Rs 200,000 in your PPF account and on the 10th, you deposit an additional Rs 100,000. Your interest will be calculated on Rs 200,000 (not Rs 300,000).

How to make this work for you: If making a last minute deposit at the end of the financial year, do so before March 5.

Power of Compounding comes into play:Recent study by Valueresearch revealed that INR30lakhs invested over 20years has shot up to 77.82lakhs, if one has invested INR 1.5lakh every year on April 1.

Plus Point:PPF account cannot be attached by a person or entity in lieu of unpaid debt or liability. Even a court order or decree cannot make a person liable to pay off his debts using money from PPF accounts 

So should you invest?

If in case your objective is to invest for short term and not looking for income tax benefits, then Fixed Deposits/debt mutual funds are the deal for you

If in case your objective is to save Income Tax and investment for long run, PPF is the product made for you.

I hope I have empowered you with enough calculations, reasons to open and invest in PPF account.  Now better take informed decision and that too for the betterment of your finances.