In 1968 government of India introduced Public Provident Fund (PPF). The objective of PPF is to encourage small savings in the form of investment, with a guaranteed return. PPF is a savings-cum-tax savings financial investment instrument, tax-saving comes under 80C. PPF help to save annual taxes and build a retirement corpus.

For newbie earners, PPF is an ideal and safe investment option, which provides the advantage of tax saving and guaranteed returns after the lock-in period of a minimum of 15 years. In this blog, we will cover the following questions in the mind of newbie earners.

1. What is a PPF account?
2. How to open a PPF account?
3. What is the interest rate on PPF?
4. Can I open 2 PPF account?
5. Essential features of PPF?
6. Is PPF interest the same in all banks?
7. Who is eligible to invest in PPF?
8. Loan against PPF?
9. PPF withdrawal period?
10. PPF withdrawal Procedure?
11. How many times PPF can be extended?
12. What are the tax benefits of investing in PPF?
13. Is PPF maturity amount taxable?
14. Comparison between PPF and NPS?
15. Comparison between PPF and RD?

1. What is a PPF account?

• Public Provident Fund (PPF) is a scheme introduced by the government of India for encouraging long-term investment among the newbie earners.
• Public Provident Fund (PPF) will offer an attractive rate of interest and guaranteed returns on the invested amount.
• The prime advantage of PPF is that the returns and interest earned are not taxable under Income Tax.
• One can open the PPF account through any Nationalized Bank or from the post office and easily start investing, with a minimum of 500 rupees and a maximum of up to 150000 rupees in a financial year.
• The maximum number of times of investments in a financial year is 12, hence it is ideal for investing monthly.
• After the maturity of the account, an investor can extend the tenure of the account in the blocks of five years.

2. How to open a PPF account?

Public Provident Fund account can be opened through any of the below institutions,

• Post Office.
• Any nationalized bank like SBI.
• Certainnationalized private banks like ICICI, HDFC…

Approach to a post office or a bank, who are authorized to provide PPF facility and submit the duly filled application form, along with the required KYC documents like address proof, identity proof, and signature proof.

The application form we can collect directly from their facility or download from online portals of authorized banks. Once submitted these documents, immediately you can deposit a prescribed amount as an investment.

3. What is the interest rate on PPF?

The interest rate of PPF will be decided by the Ministry of Finance, Government of India, year to year. The current interest rate is 7.1% as applicable from 1st January 2021. The interest is calculated on a monthly basis and credited into the account on March 31 of every year.

These interests will be compounded annually. The interest for every month is calculated on the basis of the lowest balance available in the PPF account during the 5th day and last day of every month. After the maturity period, i.e. 15 years, if the account is continuing, for balance amount also gets interested as long as the account is continuing.

4. Can I open 2 PPF account?

• As per the PPF rules, one can’t open more than one account.
• If someone opens a second account, the account holder will not be eligible for any tax-saving benefit or interest on the invested amount in the second account.
• The second account will have to be closed down, once it identified.

5. Essential features of PPF

Tenure: 

The minimum tenure is 15 years, and it can be extended in blocks of 5 years after completion of the 15 years.

Investment Limits: 

Maximum investment of Rs 150000 and a minimum of Rs 500 in a financial year, with a maximum of 12 installments.

Opening Balance: 

With Rs 100 one can open the account but need to invest a minimum of Rs 500 in a financial year to maintain the account.

Deposit Frequency: 

At least once a year for 15 years need to deposits into a PPF account, to maintain the account.

Tax Saving

Tax saving can claim under 80C for investments maximum up to Rs 1.5 lakh. PPF scheme comes under the EEE tax exemption category.

Mode of deposit: 

The deposit into a PPF account can be made either by online fund transfer or direct cash, cheque, DD to banks or post office.

Risk factor:

PPF is an Indian government-backed investment instrument hence it is a risk-free, guarantee returns investment. PPF will provide complete protection to capital invested and the interest earned.

Nomination: 

The nominee can be designate at the time of account opening or later. Joint account opening is not allowed in PPF.

Account closing:

PPF account cannot be closed permanently before the maturity period (15 years) unless the account holder’s demise. In the case of the demise of the account holder, the nominee can file for the closure of the account.

6. Is PPF interest the same in all banks?

As Public Provident Fund is a government scheme, the rate of interest is decided by the government and it will be the same in all banks or with the post office.

7. Who is eligible to invest in PPF?

• Any Indian citizen is eligible to open a Public Provident Fund account either in his own name or on behalf of a minor.
• A minor Indian citizen is also eligible to open the account, however, the tax-saving benefit will be based on the sum of the amount in the parent account and minor account maximum up to 1.5 lakhs.
• Hindu Undivided Families (HUFs) and Non-resident Indians (NRIs) are not eligible to open a Public Provident Fund account.

8. Loan against PPF?

• The PPF account holder is eligible to take a loan against PPF holding from 3rd year onwards.
• The maximum loan amount will be up to 25% of the 2nd year holding if applied on 3^rdyear, or 25% of the immediately preceding year.
• Once the first loan is repaid fully, the PPF account holder is eligible to take the second loan.

9. PPF withdrawal period?

• As per rule, after the completion of 15 years, only full amount withdrawal is allowed.
• In case of emergency, the scheme permits partial withdrawals after completion of the 6^th year.
• Withdrawals are permitted only one time in a financial year.
• Up to a maximum of 50% of the amount at the end of the 4th year or a maximum of 1.5 lakhs is permitted to withdraw prematurely at the time of emergency.

10. Procedure for withdrawal from PPF

Follow the following steps to partially or completely withdraw from PPF.

Step 1: Fill the withdrawal application with relevant information including the amount of money need to withdraw, account no, actual no of years completed, Bank details to which amount needed to credit.

Step 2: Submit the application to the bank or post office where the PPF account opened.

Step 3: Along with this application form enclose a copy of the PPF passbook to make the process easy.

Step 4: After the verification and approval, the amount will be credited to the mentioned bank account.

11. How many times PPF can be extended?

PPF account can be extended as a block of 5 years after the completion of 15 years. The investor is eligible for the interest for the balance amount accrues in the account as long as the account is continuing.

12. What are the tax benefits of investing in PPF?

• The amount deposited in a financial year under the PPF account will be claimed under section 80C tax exemption.
• PPF investment falls under the Exempt-Exempt-Exempt (EEE) category.
• At the time of withdrawal, interest and the accumulated amount are also be exempt from tax.

13. Is the PPF maturity amount taxable?

As PPF investment is EEE (Exempt-Exempt-Exempt ) category, the maturity amount is also not taxable.

14. Comparison between PPF and NPS?

• Both NPS (National Pension System) and PPF(Public Provident Fund) are government-backed investment vehicles.
• NPS is retirement specific and PPF is not a pension or retirement specific investment scheme.
• NPS is the higher return investment as a portion of it goes towards equity trading and for PPF it is fixed return investment.
• The Lock-in period for PPF is only for 15 years but for NPS it will be up to the time of retirement.
• Both NPS and PPF providing income tax saving benefits.
• NPS can start only between the age of 18 and 65 years, but PPF can start is any age.
• During the demises of PPF and NPS account holders, the corpus will be paid to nominees.

15. Comparison between PPF and RD

• PPF comes under EEE tax exemption, while forRD amount, interest is taxable and maturity amount is exempted from tax.
• The interest earned on RD or FD is lesser than PPF.
• Maturity time for FD and RD is flexible and very short compared to PPF.
• FD or RD can be stopped at any time, with small penalty charges.

CONCLUSION:

For newbie earners, PPF is the easiest and ideal investment option. Through PPF account they will get the advantage of tax saving and guaranteed returns. As it easy to open and had flexibility in the amount need to pay, it can be easily handled and continued. In case of emergency as the PPF scheme is allowing for partial withdrawal it is safe and convenient. As PPF is providing a higher interest rate than a normal bank FD or RD, it will give a higher return of the money.

As a reader, if you would like to share any points or information about PPF, please feel free to comment on the comment box, so that after the verification those contents can be added to the blog or edited in the blog to help other readers if it is beneficial.

Thanks & Regards.

Harry.

The objectives of personal finance learning for newbie earners are to get them basic financial knowledge and necessary tools that help them to build the life which they envision. This personal financial learning for newbie earners blog will cover the basics about the following 4 topics which are essential for all new earners to understand before getting the first salary in hand.

1. 10 easy Investment options for newbie earners.
2. What is Personal financial literacy?
3. What are Personal financial responsibilities?
4. How to excellent Personal financial literacy?

10 easy investment options for newbie earners.

Saving and investing our hard-earned money in the right options is one of the important financial decisions of newbie earners. Personal financial learning helps newbie earners to take suitable decisions in selecting investment options among low-risk, medium-risk, and high-risk investments.

In general, bank FD, RD, ULIP, PPF  NPS… are considered low-risk savings and investment options. Equity and market-linked investments like MF and direct equity investments are considered high-risk investments. A combination of market-linked investments and fixed return investments are considered as medium-risk investments.

10 easy investment options for newbie earners.

1. Bank FD-Fixed Deposit & RD- Recurring Deposit.

• In RD-Recurring deposit, investment is made at a fixed period regularly for the predefined time period.
• FD- Fixed deposit is the investment in which investment is done for one-time for a specific period of time.
• For both, the percentage interest rate for the invested amount will remain the same.

2. ULIP – Unit-linked Insurance Plan.

• Unit Linked Insurance Plans (ULIPs) is moderate risk, a goal-based financial instrument that offers benefits of protection and Investment for the long term.
• Unit linked Insurance Plan is linked directly to the equity market.
• It offers flexibility to invest units in debt funds or in equity depending upon our risk appetite.
• ULIPs provide long term capital gains and also offer a protection cover.

3. PPF- Public provident fund.

• The public provident fund scheme is a safe and low-risk financial instrument.
• PPF is mandated by the government and provides a fixed return.
• The minimum time period is for 15 years and it can be continued.
• The investment minimum amount is 500 rupees and a maximum of 1.5 Lakh annually.
• PPF provides the option to avail loan against the amount in the account.

4. MF- Mutual Funds.

• A mutual fund is a market-linked financial instrument that pools money from a group of investors and put it into a portfolio of financial instruments.
• The portfolio includes stocks, bonds, and government securities…
• Buying and selling shares in a mutual fund are doing as units of portfolio.
• The risk of Mutual fund investment, Is based on the financial instrument on with the units are invested.

5. NPS- National Pension Scheme.

• NPS is a government-sponsored pension scheme.
• During retirement, NPS allows investors to withdraw a part of the corpus and use the remaining corpus to buy an annuity of security.
• NPS helps investors to get a regular income after retirement.

6. Investment in Direct Equity.

• Direct equity investment is a high-risk investment that will ensure long term growth.
• Growth of our investment fund based on the way the price of a share of the company performs.
• Investors are eligible for getting the dividend as and when companies offer it to the shareholders.

7. Bonds come under RBI Regulations.

• Bonds are fixed-income instruments, hence it is a low-risk instrument.
• Bonds issued by government bodies or companies to raise capital from investors.
• During maturity, investors will get back the investment amount with interest.
• Bonds are available as Fixed-Rate Bonds and Floating-Rate Bonds

8. Gold / Gold ETF

• Gold-ETF (Exchange Traded Fund), is a commodity-based Mutual Fund investment.
• In Gold- ETF amount is invested in assets like gold.
• Gold ETF  investors will get the unit’s equivalent in cash instead of actual gold.

9. Post Office Saving Scheme.

• Most of the post office fixed deposit investment is for a period of 10 years.
• It is a low-risk investment and provides a higher return than normal bank FD.
• The annual interest of the deposit is credited to the investor’s savings account.

10. IPO – Initial Public Offerings.

• Through IPO shares of a private company are offered to the public.
• Once the IPO is realized, investors can apply through the Demat account and get it.
• IPOs help companies to obtain capital through the primary market.

Well thought out decision based on personal financial literacy is needed to select the suitable investment options, which help newbie earners to meet the Personal financial responsibilities.

What Is Personal Financial Literacy?

Personal Financial literacy is the capability to understand the financial principles, which help to manage money effectively and wisely. The essential part of personal financial literacy is knowing how to manage money. To become personal financial literate, newbie earners need to take a step to implement personal financial principles in life.

• Financial Literacy is important for newbie earners because a proper understanding of personal finance concepts helps them to manage the earning effectively.
• Money is easy to mismanage, it will lead to a financial struggle in the future.
• If newbie earners spend time to learn how to manage money and apply those skills in life, they can build wealth easily.

What Are The Benefits of Personal Financial Literacy?

The benefits of personal financial literacy are countless however here are a few important points to the lookout.

• Net worth will grow continually, irrespective of what you earn.
• Helps to avoid going into debt, even with lower earnings.
• Less Financial Struggle in the older ages, even if don’t have any income.
• Better Household Finances, even in the situation of increasing expense.

What are personal financial responsibilities?

Financial responsibility means having a lifestyle that meets the social standards within means, regardless of the level of income. To succeed in personal finances, newbie earners needs to have a close look at the financial situations, evaluate earning, and make adjustments in the spending habits to match it. As Financial responsibility had a big impact on the future, it is important to expertise on personal financial literacy from an early stage of earnings.

Key points of Personal Financial Responsibilities. 

• The management of personal finances effectively to meet the financial needs of individuals and family.
• Meeting the standard of lifestyle irrespective of economic, cultural, social, and technologies.
• Able to support yourself and family financially for at least six months irrespective of zero income and adverse circumstance.
• Having an organized plan for saving and spending money.
• Making the right decisions early in life to become financially independent and having a comfortable retirement life.
• Understanding the four basic components of finance, like income, Expenses, Assets, and Dept.
• Having a good understanding of the difference between a Good and Bad Debt

To get expertise in the subject of personal finance, one need to understand personal financial planning concepts and applications. Application of Personal finance includes cash in and outflow, net worth and asset, income taxes, insurance, and consumer debt… A Financially Responsible person avoids Debt and should meet the financial emergencies from the savings or investments.

How to excel in personal financial literacy?

People will spend years getting a degree to get a well-paid career. To manage the earnings from the career newbie earners need proper financial literacy. It doesn’t take years to get financial literacy for beginners. With a focused effort, anyone can become financially literate over the course of a few weeks.

To develop personal finance literacy, newbie financial learners have many options like,

• Take a paid or free courses online or offline from some experts,
• By reading a couple of personal finance for beginners books.
• Learning from YouTube, Blogs, or Articles from any search engine.

5 practical steps to excel in personal financial literacy.

In-spite of learning to become experts in the domain of financial literacy needs to practice the following 5 steps.

1. Track Your Income and Net Worth.

• The difference between assets and debt tells where newbie earners stand financially.
• Keep an eye on income and expense help to keep the track of the progress of financial literacy.
• Manage Money by Creating a personal investment portfolio help to increase the net worth, irrespective of earning.
• Newbie Earners need to focus on regulating expenses wisely to become Personal financial responsible in society.

2. Set a Budget, time Period.

• As part of Personal Financial Learning, all newbie Earners should prepare a checklist of expenses.
• The checklist helps to knockout unwanted expenses and meet the personal budget with within the income.
• This budgeting is the starting point of for financial goals in life.
• Proper budgeting help to spend judiciously and deal with surplus cash.

3. Take a Daily Money Minute

• It is important to spend at least one minute every day to check financial transactions.
• Now there are many online apps available to manage and monitor our daily expenses.
• Preparation of money minutes helps to identify overall expenses and keep track of financial goal progress.
• This also helps to set the spending tone for the rest of the days in the month.
• In money minutes it is important to add a personal balance sheet and tax paid.

4. Allocate at Least 20% for the future.

• Planning for Retirement should be one of the prime objectives of Personal financial responsibilities.
• Newbie earners need to priorities, their savings, and investments.
• First priority of fund allocation should for building up emergency savings and retirement funds.
• Managing the debt wisely will help to safeguard the money for the future.

5. Spend at least 10% of Your Income on Lifestyle and fun.

• Spending the money for lifestyle and fun is an important part of Personal financial learning for Newbie Earners.
• If we don’t spend the money for the fun, during our retirement age, we may have a corpus of the amount in our hand, however, it may lead to regret about not enjoying life at a younger age.
• Income for Lifestyle and fun should include movies, outing, travel… ideally anything that doesn’t cover under the basic life

Conclusion:

For newbie earners, it is essential to spend time developing Personal financial literacy. through that, they can meet Personal financial responsibilities. Making proper budgeting and tracking the expenses is the fundamental of Personal financial literacy. The goal of every newbie earner should be to have a hassle-free retirement life with financial freedom, as early as possible. Practicing the knowledge earned through financial literacy is an important factor to enhance the skills.

Thanks & Regards.

Harry.