How to manage corpus effectively after your PPF account matures?

 

PPF account maturity: Public Provident Fund (PPF), a small savings, long-term investment scheme backed by the government, is a tax saving scheme that provide stable returns. Deposits in PPF qualify for deductions under Section 80C of the Income Tax Act, while the interest earned in the account is free from income tax under Section 10 of the I.T. Act.

PPF account maturity: Public Provident Fund (PPF), a small savings, long-term investment scheme backed by the government, is a tax saving scheme that provide stable returns. Deposits in PPF qualify for deductions under Section 80C of the Income Tax Act, while the interest earned in the account is free from income tax under Section 10 of the I.T. Act.

When one opens a PPF account, one can deposit every month a minimum of Rs 500 and a maximum of Rs 1,50,000 in a financial year. The interest is compounded annually.

A PPF account matures after 15 years of its opening. The maturity amount is inclusive of the interest accrued over the period and is exempt from tax. When the account matures, the accountholder gets three options-

-One may choose to withdraw the sum and invest it in other higher return-providing avenues

-They may also decide to extend the PPF account without making fresh investments, or they can extend it by making fresh investments.

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"When you withdraw your maturity amount, you have the option to reinvest the amount in other investment options depending on your risk appetite. You can reinvest the amount in an avenue that suits your requirements the best," said Sahil Arora, Chief Business Officer (Unsecured Loans), at Paisabazaar.

-One may consider continuing with the PPF account with further deposits as they have been doing so far, or they can continue the PPF account without making any fresh investments in a block of 5 years indefinitely.

"During this period, the corpus will continue earning interest at the actual rate, and you have the option to withdraw funds once every financial year. If you don’t have an emergency financial requirement and you don’t want to invest more, you should extend the PPF account. However, you have to inform the account officer about the extension without fresh deposits," he added.

Sahil Arora further said, "On maturity, you should ideally extend the PPF account with fresh deposits. This way, you will continue getting the Rs. 1.50 lakh tax benefit under Section 80C. The existing amount and fresh deposits will continue to earn interest at the rate decided by the government. You can also make a withdrawal once every year from this PPF account. However, the total withdrawal limit is capped at up to 60 per cent of the amount at the start of the 5-year extension."

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One will have to fill out Form H and submit it to the account officer of the bank or the post office where the respective account is being operated about the extension of the account with fresh investments within one year of the account maturity. This needs to be done for every extension of 5 years. If this is not done, fresh deposits would be considered irregular investments, and no interest would be paid on these deposits.

AR Hemant, AVP, BankBazaar.com., said, "Since an investor has saved a fortune, reinvesting it in another scheme such as an index fund would be wise if one has no immediate plans for using the money. This would prevent corpus exhaustion and keep the money growing."

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(Disclaimer: Investments are subject to market risks. Do your own research or consult your advisor before investing.)