All you wanted to know about PPF (Public Provident Fund)

Public Provident Fund is one the best Tax Savings Scheme. PPF is a long-term, government-backed small savings scheme of the Central government started with the objective of providing old age income security to the workers in the unorganised sector and self-employed individuals.
Suitable for
It is especially suitable for self-employed professionals and small businessmen who are not covered by the Employees' Provident Fund. Those who don't have access to an organised setup can realise long-term goals through the PPF.

Annual limit
There is an annual limit of Rs 70,000 that one can invest in the PPF.

Returns:
The 8% compounding interest you earn on the balance can work wonders for you, especially because a PPF account is a long-term investment.This is tax-free money. In the 30% tax bracket, this is equivalent to receiving almost 11.5% interest on a bank fixed deposit. The PPF offers the highest post-tax returns among all fixed income options since no tax is levied on the investment, income and withdrawals.


What is the minimum and maximum amount of deposit?
The minimum deposit that you can make into a PPF account in a year is Rs 500. The maximum is Rs 70,000.

The excellent point:
If you contribute Rs 70,000 a year to your PPF for 15 years, your investment would grow to Rs 22.92 lakh on maturity. 



What are the tax benefits from PPF?
The amount you invest is eligible for deduction under the Rs 100,000 limit of Section 80C. On maturity, the entire amount including the interest is non-taxable.
 

What is the interest rate offered through PPF?
Currently, the interest rate offered through PPF is around 8 per cent, which is compounded annually. Interest is calculated on the lowest balance between the fifth day and last day of the calendar month and is credited to the account on March 31 every year. So to derive the maximum, the deposits should be made between 1st and 5th day of the month.

Best way to get started:
Open PPF in your bank as ask to link it with your savings account. Then you can transfer/view details of you PPF account online too.

How to open PPF account:

1. Make a trip to your local post office. You can open it at any head post office or selection grade sub post offices.

2. Visit the nationalised bank in your neighborhood. Selected branches of nationalised banks can also open accounts.

3. Drop by a State Bank of India branch

Most important point related to PPF account

You can have only one PPF account in your name. If at any point it is detected that you have two accounts, the second account you have opened will be closed, and you will be refunded only the principal amount, not the interest.

You cannot open a joint account with another individual. The account can only be opened in one person's name.
Procure and submit account opening form and Identity/address Proofs

It would only 3 minutes to fill. Choose a nominee and get a witness signature. Now you have to submit anyone of following Proofs.

Passport
Pan card
Driving license
Voter id
Ration card
Two Passport Size Photographs

Any government issued identity or address proof should work. Keep originals of proof in hand for verification if needed. That's it. The bank should now be able to open the account. Usually it may take about 20 minutes or so.

Deductions Under 80C, 80CCC and 80CCD for Tax Planning

The aggregate amount of deduction available under section 80C, 80CCD and 80CCC can't exceed Rupees one Lakh (1,00,000) per annum.

The above section is categorized under two:

1. Investment option deductions
2. Expenses related deductions


1. Investment options deductions are as follows

Public Provident Fund (PPF)
Employees Provident Fund
Equity Linked Savings Schemes(ELSS Funds of Mutual Fund)
Unit linked Insurance Plans
 Infrastructure Bonds (max investment amount is Rs.20,000/-
National Saving Certificates (NSC) 5 years
Bank and Post office Time Deposit Schemes
New Pension Scheme Under 80CCD
Life Insurance Premium(includes premium paid for life insurance and pension funds both quality for deduction under 80C and 80CCC respectively)

2. Expenses related deductions

1. Children tuition fees. The maximum limit for the tuition fees is Rs.12000/- per child. Full time education of any two children in any school, college or University subject to over all limit of tax deduction.

2. Repayment of Housing Loan Principal amount with the max limit of 1,00,000 and other deductions which are also entitled are as follows: Expenses incurred on purchase of house property, stamp duty, registration fees and legal expenses incurred for the purpose of purchase of house property.

Five Common Myths In Mutual funds Investment

 Five fund myths

It is easy, even for an intelligent investor, to be taken in by the hype surrounding a mutual fund scheme. Such misconceptions can impact the investments, which is why they need to be debunked.

1. A fund with a net asset value (NAV) of Rs 10 is cheaper than the one whose NAV is Rs 50
2. A balanced fund will always have a 50:50 debt to equity ratio
3. Large corpus funds generate higher returns
4. Funds that regularly declare dividends are good buys
5. SIP always scores over lump-sum investing

Here are the five common myths:

1. A fund with a net asset value (NAV) of Rs 10 is cheaper than the one whose NAV is Rs 50:

The NAV of a mutual fund represents the market value of all its investments. Any capital appreciation in the fund scheme will depend on the price movement of its underlying securities. Suppose you invest Rs 1,000 each in Fund A (a new scheme with an NAV of Rs 10) and Fund B (an older scheme with an NAV of Rs 50). You will get 100 units of Fund A and 20 units of Fund B. Let's assume that both the schemes invest in just one stock, quoting at Rs 100. If the stock appreciates by 10%, the NAVs of the two will rise by 10%, to Rs 11 and Rs 55, respectively. In both cases, the value of investment rises to Rs 1,100-an identical gain of 10%. Fund B's NAV is higher as it has been around for a longer time and had bought the scrip earlier, which appreciated. Any subsequent rise and fall in the funds' NAVs will depend on how the scrip moves.

2. A balanced fund will always have a 50:50 debt to equity ratio:

Balanced funds aim to achieve a balance between equities and debt. But the balance can tip depending on the nature of the fund. The equity-oriented balanced funds usually invest at least 65% in equities and the rest in debt. The others do this in a 40:60 ratio.

3. Large corpus funds generate higher returns:

A fund with a very large corpus is prone to inefficiencies as rising assets become unmanageable after a point. Also, most fund managers are more dextrous managing mid-sized funds. A large fund forces them to broaden their stock universe. This can lead them to include less researched or low-potential stocks in the fund's portfolio or increase the stake in certain stocks, leading to a selection bias. HDFC Equity has a corpus of Rs 2,680 crore, but its three-year annualised return is -1.68%, whereas the best performer for the same period is Reliance Regular Savings Fund, with an annualised return of 7.71% and an AUM of Rs 618 crore. At one-fifth the assets, the Reliance fund has fared far better.

4. Funds that regularly declare dividends are good buys:

Fund houses declare dividends when they have distributable surplus. However, there are times when fund managers declare dividends as they do not have adequate investment opportunities. In some circumstances, a fund manager may sell some quality stocks to generate surplus for dividend distribution to attract investors.

5. SIP always scores over lump-sum investing:

A systematic investment plan (SIP) is the best way to invest during volatility as it lowers the average per unit cost. This is also termed as rupee cost averaging. However, investing systematically during a bull run results in lower returns. When markets are constantly rising, SIP fails to lower the average cost and so results in lower returns compared with a lumpsum investment.

Revised Process related to Minor Investment , Nomination , Transmission

This is with reference to Addendum 98, following are process & document related changes applicable w.e.f. 1st April,2011.
Summary points:
Minor Investment -
 No joint Holding allowed in Investment on behalf of Minor
Only natural Guardian ( Father/Mother /Court appointed Legal Guardian ) allowed.
Birth date proof to be submitted alongwith application. Documents like Birthcertificate , School leaving certificate ,passport copy, Anyother proof evidencing Date of Birth
In case of Court appointed Guardian , supporting documentary evidence required.

Minor Attaining Majority -
Minor to submit application to transfer folio in his own name once he becomes major,
Guardian can not undertake any txn (including SIP ,STP ,SWP) once minor become major.

Change in Guardian
Change of Guardian is possible either due to Mutual Consent or demise of existing Guardian.
Documents to be submitted are (1) Request letter from new Guardian (2) No objection letter /consent letter from existing guardian if alive
Notarized copy of Death certificate of deceased guardian

Nomination Mandatory -
Nomination shall be mandatory for all new folios
Nomination will be at folio level and shall be applicable to all schemes
All joint holder to sign nomination form
Nomination shall not be allowed in Folio held on behalf of Minor
In case Investor does not want to update nominee details , written confirmation to that effect from Investor will be required.


Also refer:

Procedure for Transmission - Change in Guardian due to demise of Existing Guardian

DIVIDEND IN SUNDARAM SMILE FUND RECORD DATE: APRIL 08, 2011