PPF-Loan and Withdrawal

Leave a comment


BasuNivesh now available in it’s own domain www.basunivesh.com from 22nd June 2012.

Today I am going to make you familiar with rules and regulation of withdrawal and loan facilities of PPF. Why I felt this topic necessary is, while preparing my final module of CFP I didn’t get the clear information about this in my notes, also when I googled it. All have copied the same wordings which are somewhat confusing to common man. Hence today I will tell you with example.

Suppose you opened the account on 22/12/2011 and below table will give you simple example when you can withdraw and take loan. If you add 15 yrs (Term of PPF account) to your account opening date it will be 22/12/2026 which you think maturity date. But it will mature on 1st April 2027 (which is first working day of FY 2027-28). So, it is exactly not 15 years but in practical it is around 16 years.

Financial year Year End Balance in your PPF account (Assumptions for better  understanding) Is it eligible for loan? Is it eligible for withdrawal? How much eligible?
2011-12 Rs.75,600 -No- -No- NA
2012-13 Rs.1,58,000 -No- -No- NA
2013-14 Rs.2,20,000 Yes -No- Rs.18,900 (25% of 2011-12 year end balance)
2014-15 Rs.3,10,000 Yes -No- Rs.39,500 (25% of 2012-13 year end balance)
2015-16 Rs.4,50,000 Yes -No- Rs.55,000 (25% of 2013-14 year end balance)
2016-17 Rs.5,50,000 Yes -No- Rs.77,500 (25% of 2014-15 year end balance)
2017-18 Rs.6,80,000 -No- Yes Rs. 1,10,000 (Which is 50% of balance for the year preceding fourth year of withdrawal taking year and less than the preceding year i.e. 2016-17 yrs balance)

So, from above table you may have noticed that loan will be available from 3rd FY to 6th FY. That also 25% of the year end balance preceding 2 yrs of loan taking FY. Loan will have to be repaid within 36 months and interest is more than what you’re getting from PPF account. You will not get one more loan until you repay the existing loan. From 7th FY you are not eligible to take loan.

Withdrawal will be available from 7th FY onwards. Only one withdrawal is permissible. The amount of withdrawal will be lower of-immediately preceding 4th FY balance or immediately preceding FY balance.

Hope my effort given you the better picture of the topic what thought to share.

Advertisements

PPF- When to contribute to get higher returns?

3 Comments


BasuNivesh now available in it’s own domain www.basunivesh.com from 22nd June 2012.

Today I am going to share with you one simple thing about PPF which you may noticed it or not during the opening of your PPF account.

As you know PPF interest rate is 8.6% Compounded Annually (Effective from Dec 1st 2011). The interest for a month is calculated on the lowest balance between the close of the fifth day and the end of the month and is credited to the account at the end of each year. It means, if you want to have this benefit you need to invest your contribution within 5th of each month. Else your contributed money will calculated as Principal for the next month. So one month that money will be idle.

To get clear picture how you will get good returns by just following the above rule i,e contributing each month before 5th, I will show you the calculation.

Suppose Mr.X and Mr.Y opened PPF account on same day and started to contribute Rs.8,000 each month but Mr.X is contributing before 5th and Mr.Y is contributing after 5th of each month then how much difference we can see.

Mr.X’s Accumulation after 15 years.

First Year Contribution Rs.8000 PM.

1st Month Contribution-8,000+688 (interest for 12 months)=8688

2nd month Contribution-8,000+630 (Interest for 11 months)=8630

Like this at the end of 1st year Principal is (8000*12)+(4465)=1,00,565. The same amount will be his contribution for the remaining 14 years. So, at the end of the 15th year his accumulated amount is Rs.28,61,481.

Mr.Y’s Accumulation after 15 years.

First Year Contribution Rs.8000 PM. (But after 5th of each month)

1st Month Contribution-8,000+630 (Interest for 11 Months)=8630

2nd Month Contribution-8,000+573 (Interest for 10 Months)=8,573

Like this at the end of 1st year Principal is (8000*12)+ (3777)=99,777. The same amount will be his contribution for the remaining 14 years. So, at the end of the 15th year his accumulated amount is Rs.28,39,059.

Difference of returns between Mr.X and Mr.Y is-Rs.22,422.

But you may say what is the time value of this difference after 15 years?

It may be your one month rent what you are paying now. How???

Suppose today you are paying Rs.9,00 PM as rent then the future value of that will be Rs.21,569. (Inflation-6% Tenure-15 yrs).

So what I mean to say is, it may not be that much big amount but with little care and little knowledge you can add more value to your money.

%d bloggers like this: