Public Provident Fund or PPF

This is an interesting and useful wealth creation instrument. Any Indian citizen (an individual and not HUF) can open a HUF account in post office or some recognized banks. A PPF account can be opened as soon as a child is born. Currently (2014-15), per person limit is Rs 1.5 Lakhs. The limit ideally is per person (including all his dependent minor children). But in banks or post office, they are not checking this rigorously. Hence, if one has 2 dependent minor children, he will not be objected to invent (deposit) 4.5 lakhs (1.5 for self + 1.5 for either minor children).

However, for income tax rebate, only Rs 1.5 Lakhs is considered.

As per rule, if one deposits more than 1.5 lakhs, there will be no interest for the additional amount.

The attractiveness of PPF is its EEE concept, it is exempt from tax at the time of deposit(in the year or deposit), during the growth phase(when the corpus is earning interest) and when the account matures and the subscriber withdraws the amount.

However there are some conditions. The account is open for 15 years (There are rumors that the period may be increased to 20 years with higher rate). The amount cannot be fully withdrawn before 7^th year after which some partial withdrawals are allowed. In post office one has to go physically and deposit and in banks one can use account transfer. One has to keep depositing at least Rs 500 per year for the tenure of the account.

After completion of 15 years one can withdraw the money entirely or extend the account for a period of 5 years. This 5 years extension can be done any times subsequently.

The interest rate is yearly announced and is reasonable. Many other details can be had from the following wiki entry.

http://en.wikipedia.org/wiki/Public_Provident_Fund_(India)

If one is looking for a steady risk free income, this is a good instrument to be considered. Also this can be used even if one is having employee provident fund account. Also, 15 year lock in creates some discipline and help compounding to take place. Also this is the only instrument which gives such return over a long period.