PPF limit raised to Rs 1 lakh

Small savings rates hiked; PPF limit raised to Rs 1 lakh

New Delhi, Nov 11: Interest rates on small savings have been hiked in the range of 4 per cent up to 8.6 per cent. The investment limit for Public Provident Fund (PPF) has also been increased by Rs 30,000 to Rs 1 lakh, as also the interest rate at 8.6 per cent from 8 per cent at present.

Announcing the new norms on Friday, the Finance Ministry said the new rates will be applicable from the date of notification which will be announced soon. From next year, the rates would be notified before April 1, it added.

The small saving schemes have been restructured on the basis of the recommendations of the Shyamala Gopinath Committee, which submitted its report in June.

The rate of interest on small savings schemes will be aligned with Government Securities rates of similar maturity, with a spread of 25 basis points with two exceptions. The spread on 10-year National Savings Certificates (new instrument) will be 50 basis points and on Senior Citizens Savings Scheme 100 basis points.

The maturity period for the post office Monthly Income Scheme (MIS) and National Savings Certificate (NSC) has been reduced to five years from six years at present.

AGENTS DISAPPOINTED
Although this is good news for small savers, collection agents are disappointed. According to an office memorandum issued by the Finance Ministry, payment of commission on PPF at the rate of 1 per cent and Senior Citizens Savings Scheme at the rate of 0.5 per cent will be discontinued.

Agency commission under all other schemes (except Mahila Pradhan Kshetriya Bachat Yojana) will be reduced by half, from the existing 1 per cent.

PPF ACCOUNT



Your Public Provident Fund (PPF) account can continue living even beyond its specified 15-year tenor. The tenor of the account can be extended every five years ad infinitum even after the man- datory 15-year period is over.

WHAT IS A PPF?

A PPF is a 15-year debt instrument that works somewhat like a sys- tematic investment plan. Every year you need to make deposits in your account. Your deposits could range anywhere between Rs500 and Rs70,000. You can deposit up to 12 times a year. PPF currently pays an interest of 8% per annum, which is a guaranteed rate by the government of India.

PPF is arguably the best investment vehicle as it offers a risk- and tax-free 8% return. Not only do you earn tax-free returns, but you can also save on your taxes while investing. PPF investments are also allowed for deduction under section 80C.

WHO IS ELIGIBLE TO OPEN A PPF ACCOUNT?

If you are an Indian national or fall into the Hindu undivided family category, you can open a PPF account. You can oper- ate your account from abroad if you opened it while in India, but if you are a non-resident Indian, you can't open a PPF account. You can open your PPF account in any post office or designated branches of na- tionalized banks.

HOW CAN YOU EXTEND THE TENOR?

At the end of the 15th year, you can simply ask your bank or post office branch, where you opened your account, for an extension. In this extended pe- riod, you can continue to make a minimum contribution of Rs500, but it is not mandatory on you.

Even during this period, you will continue to earn 8% as interest.

When you extend your PPF, you get locked-in for the five-year period. However, partial withdrawals are available--60% of the to- tal balance at the beginning of the extension can be withdrawn as a lump sum. Alternatively, the withdrawal sum can be spread over five years.

SHOULD YOU EXTEND?

Though you continue to earn the same rate of interest, remember that this 8% is not a rate that is guaranteed for life. Periodically, the Central government declares a rate that gets applicable on fresh investments. Before you go for any extension, check what rate the PPF is fetching you. If it tides over inflationary pressure, it is still a good instrument to invest.