With the stock markets swinging wildly like a yo-yo, investors are left scratching their heads over where to invest their money. Getting market-beating fantastic returns is one thing, most portfolios have given negative returns since early this year, and many smaller investors and traders have seen their capital being wiped out in the mayhem that has hit Dalal Street.

Enter the PPF (Public Provident Fund), one of the popular but often overlooked saving instruments. People seem to remember PPF only when it is time to save tax, but they forget it’s value as a retirement planning instrument.

Most young people are put off by it’s 15 year lock in period, however they would do well to remember that it is a Government backed instrument and guarantees a fixed interest rate (which is compounded), and the interest earned does not attract any income tax. The principal of course, is exempt under Section 80C, subject to a maximum of Rs.70,000 in the financial year. Above all, in the event of a litigation, the amount in the PPF account is safe and cannot be attached by any law as per provisions of the PPF Act.

You can open a PPF account at specified branches of some nationalised banks (like State Bank of India), or any head post office. Initial contribution has to be Rs.500, generally by cash, after which the account is opened and you are handed your passbook.

Any individual can subscribe to the PPF scheme, either for self or on behalf of a minor for whom he/she is the guardian. One person cannot have multiple accounts. A nomination facility is allowed, however. The total amount per person cannot exceed Rs.70,000 in a financial year. Secondly, only twelve deposits are permitted in a year.

The other beauty of the system is that the contribution is deemed to have been made on the date you deposit the cheque, and not when the cheque gets cleared, so this allows additional interest to accrue. Remember, small drops make an ocean ! :)

The Central Government notifies the rate of interest, which is then credited on March 31 to the account on the balance between the end of 5th and end of the month. The rate presently stands at 8%, compounded annually.

In case you wish to avail a loan, you can withdraw upto 25% of the amount available in the preceeding second year from the 3rd year to 6th year.

For final withdrawal, you can do so once during any year after six years. The amount of withdrawal is limited to 50% of the balance at credit at the end of 4th year immediately preceding the year in which the amount is withdrawn or at the end of the preceding year whichever is lower.

Once the 15 year term is over, the account can be extended in blocks of five years at a time. You can also discontinue anytime, however the repayment of the subscription amount and interest will be made only after completion of 15 years of the account.

So what are you waiting for? Allocate some percentage of your portfolio to the PPF and sleep a little peacefully at night ! :)

 

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