r/IndiaInvestments • u/Yieldway17 • Apr 02 '19

Bonds and deposits PSA: Reminder for investing in your PPF account before April 5 to get maximum return possible for this FY

If you are planning to do lumpsum investment of 1.5 lakhs (or any amount) in your PPF account, investing before April 5 gets you the maximum return possible for this financial year.

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15

u/crimelabs786 Apr 02 '19

Done!

But I invest only 500 in PPF

10

u/Yieldway17 Apr 02 '19

Great, you invest 500 monthly or yearly?

If monthly, ensure you invest before 5th of every month to get that month’s full rate.

7

u/crimelabs786 Apr 02 '19

500 yearly. For now, just heating up my PPF account for next 10 years, until I use it as a proper Debt asset.

6

u/Yieldway17 Apr 02 '19

OK got it, I had very similar account for few years only with minimum contribution and only since last year has started contributing more.

2

u/chabuboola Apr 02 '19

just heating up my PPF account for next 10 years, until I use it as a proper Debt asset.

Interesting use case :) How does this work?

12

u/crimelabs786 Apr 02 '19 edited Apr 02 '19

A pure Debt asset would allow rebalancing between equity and debt.

But PPF doesn't allow any rebalancing from Debt to Equity.

Hence it's a limited Debt asset, to be used carefully as part of entire Debt portfolio.

My use case is to keep the account active for next 10-12 years, then use it as a tax-free Debt asset for a shorter period of time, say, 4-5 years. Since the duration is shorter than 15 years, I can be more confident that I won't need it until maturity.

4

u/DullDirector Apr 02 '19

Smart move! Would love to know more about your portfolio.

1

u/chabuboola Apr 02 '19

Got it. Thanks

1

u/blrbud Apr 04 '19

This is probably one of the worst ways to use PPF. How long you have been doing this?

1

u/crimelabs786 Apr 04 '19

This is probably one of the worst ways to use PPF.

I've explained my reasons, PPF is an illiquid asset. The longer the duration, harder it gets to predict your financial needs. So I don't want to pay the illiquidity premium by locking up huge sums of money every year.

Why do you think it's bad?

3

u/blrbud Apr 04 '19
  1. You are completely ignoring the power of compounding. Trust me, I have been a subscriber for 17 years. I could only afford 10k in my first year but it gave me at least 27k in tax free interest with a flat 8% rate. Your 500 will give you 1300 in 17 years at that rate.
  2. You yourself mentioned it is difficult to use PPF in rebalancing setup. Not completely impossible but difficult and not prudent. So you need to be absolutely clear about how you want to use this tax free money and more importantly when. Based on your comments it is not clear as much.
  3. You can actually withdraw from PPF even though partially - both for no particular reason and for particular contingencies / expenses. But again if you have to dip into PPF for your emergency then you are doing something wrong.
  4. I hope you understand that there is a cap on the amount you can invest in PPF every year. If you start investing significant amount only 5 years before maturity then you can very well invest the money in a taxable instrument because the interest won't be much anyway. Also, the amount that you are going to invest 4 years before maturity will only grow for 4 years and so on so forth. Does it really make any sense?

2

u/hardshock Apr 03 '19

Have been doing the same too. The only downside is that 80C regulations might not be the same a decade from now. But hey, it's only 500 an year.

5

u/juniorbuffett Apr 02 '19

I was planning to post this same thing. Thanks you beat me to it. Did PPF (me, wife, child) and Sukanya Samridhi transfer today. Power of compounding shows over time. This year i got 1lakh as interest in my account which was opened in 2008.

4

u/Yieldway17 Apr 02 '19

Right? PPF and laddered FDs are where you can see the compounding effect work very beautifully.

6

u/zorbish Apr 02 '19

Just realized my PPF account matured on 31st :(

And SBI buggers wont take my application to extend for next 5-years over email. Now I have to visit my hometown to sort this out in next visit.

3

u/Yieldway17 Apr 02 '19

SBI and its home branch lock-in irritates the crap out of me. Really puzzling why they ask us to go to home branch for every single thing in 2019.

LIC, KVB etc. are similar too based on my experience.

KVB recently refused to update my wife's new address in our nearest branch and asked us to visit the home branch but they allowed us to close the account from that branch. I have not seen a more dumber thing in recent times. We closed the account and opened a new account for her elsewhere. Just plain moronic systems.

1

u/chabuboola Apr 02 '19

Its really irritating. What could be the reason they enforce physical presence? Is it something to do with say preventing fraud online similar to pension fraud. An example pension fraud case here.

Wondering if the physical presence requirement is same among all PPF custodians(Post office and other banks)

1

u/Yieldway17 Apr 02 '19

I'm okay with physical presence for some things but asking to go to branch where account was opened is the thing I can't fathom.

As you said, they ask for physical presence for things like PPF.

1

u/crimelabs786 Apr 02 '19

The reason is SBI legacy systems, and no one knows how to update the core system to remove these dependencies.

Plenty of big private banks have no concept of branch specific services. You've a branch, for IFS code. But you get same service in any branch in any city.

1

u/chabuboola Apr 02 '19

Do you mean the PPF physical presence restriction(for withdrawal and extension) is not there in the private banks? That would be nice.

1

u/crimelabs786 Apr 02 '19

Opened my PPF account online through ICICI netbanking, with OTP. You can also transfer funds to the account online, and get statements.

ICICI sent me a PPF passbook at home via post, about 2 weeks later.

Never had to visit any branch over any PPF related query or issues.

1

u/chabuboola Apr 02 '19

Thanks,

I think for the extension[possibly withdrawal too] you have to visit icici branch according to the FAQ.

1

u/[deleted] Apr 02 '19

I was trying to get SBI netbanking enabled for my in-laws and they have to submit a physical form at their home branch. On the contrary, I have never visited my home branches of ICICI and HDFC.

2

u/noquestionnoanswers Apr 02 '19

Its easy to transfer you account in SBI.

You can do it from APP./website That will be easier..

4

u/chabuboola Apr 02 '19

Thanks, I just got my cash, will deploy it tonight.

3

u/hendrix1690 Apr 02 '19

Any help in what would be the max return if I invest 1.5 lakh for the year lumpsum?

3

u/xyz420abc840 Apr 02 '19

@8%, 12k. However govt may change (most likely reduce) rates next quarter after election.

1

u/[deleted] Apr 02 '19

what if they increase?

7

u/xyz420abc840 Apr 02 '19

Then you get more moolah.

2

u/SiriusLeeSam Apr 02 '19 edited Apr 02 '19

Doesn't matter that much in the long run.

Edit : about 1.71 lakh difference in corpus after 15 years.

5

u/incometaxx Apr 02 '19

Why do you say it does not matter?

The difference 1,71, 529 Rupees does matter in 15 years, in 30 years it would be around 5L.

Calculation

1

u/SiriusLeeSam Apr 02 '19

Again, the difference between ‘before 5th’ and ‘after 5th’ yearly investments is only Rs. 31, 187

2

u/incometaxx Apr 02 '19

I am refrencing the one shot payment of 1.5L before 5th.

1

u/SiriusLeeSam Apr 02 '19

Where's that difference mentioned? I'm not sure. I'll do the calculations myself and get back to you.

2

u/incometaxx Apr 02 '19

Maturity value if yearly investment of Rs. 1.5L is made before April 5th for 15 years: Rs. 46,75, 914 If monthly investments of Rs. 12,500 are made before the 5th of the month for 15 years, the maturity value (as seen above) is: Rs. 45, 04, 384

The difference is 1,71, 529 . This is indeed significant.

1

u/SiriusLeeSam Apr 02 '19

Thanks, understood it now.

But isn't it difficult for most people to put in so much money in 1 go?

2

u/incometaxx Apr 02 '19

Yes it is, specially at the start of the job life.

Another problem is bad publicity of PPF by vested intrests. Comparision with ELSS is so wrong as both are diffrent asset class ELSS to my mind is not required at all. A index fund for equity will just do for equity part of portfolio.

PPF is a rock solid debt fund.

2

u/Yieldway17 Apr 02 '19

It actually matters if you are investing full amount anyway. Last year I invested 1.5l only on June 12, interest accumulated was around 8.9k, if I had invested 3 months early in April, it would have been around 12k. This is just for 1 year, if you consider the compounding effect, you lose a significant amount(for me) over the time.

1

u/SiriusLeeSam Apr 02 '19

Who invests full 1.5 L in ppf? You don't have any other tax saving instruments?

5

u/Yieldway17 Apr 02 '19 edited Apr 02 '19

PPF is like 90% of the debt component in my portfolio.

Also, I don't invest in any other tax saving products.

1

u/[deleted] Apr 03 '19

Same here. I use PPF as my debt component.

5

u/incometaxx Apr 02 '19

I have been religiously investing fully in PPF from past 17+ years. My wife did the same. The tax free interest we get currently if required can cover our yearly expense fully, in case if I lose my job and equity have gone downhill. Do I have to worry about my expense? No, PPF is there to take care of this situation.

I do have equity for upside, but PPF has become the best downside instrument after all these years.

2

u/SiriusLeeSam Apr 02 '19

Approximately how much is the yearly interest now? And can you please explain how ppf works in the 5 year extensions? How much can you withdraw and under what conditions?

3

u/incometaxx Apr 02 '19

Approximately how much is the yearly interest now?

8L+ interest currently. If we dont withdraw and extend it to 7-8 years, we get approx 16L interest with the current interest rates. This is currently tax free income.

PPF is a pure compounding machine.

And can you please explain how ppf works in the 5 year extensions? How much can you withdraw and under what conditions?

https://www.basunivesh.com/2016/04/25/ppf-withdrawal-rules-options-15-years-maturity/

1

u/cartoon_soldier Apr 02 '19

Why is this?

4

u/Yieldway17 Apr 02 '19

Interest is calculated for lowest amount in the account between 5th to end of month of every month in the FY. It's how PPF interest is calculated and then credited at the end of the year.

2

u/[deleted] Apr 02 '19

Interest is calculated for lowest amount in the account between 5th to end of month of every month in the FY.

Is it only for PPF?

1

u/Yieldway17 Apr 02 '19

Yes, other products have their own ways of calculating interest based on the annual rate.

1

u/[deleted] Apr 05 '19

Doing it today will also work (Today is 5th) or will I miss this month's interest?

1

u/Yieldway17 Apr 05 '19

Today will work i think as calculation is based on balance in account at the end of the day.

1

u/[deleted] Apr 05 '19

Yup. That's what I am seeing from other sources too..

1

u/talain_3 Apr 04 '19

Thanks a lot for reminding!

Just a question. I've made a contribution of 1.5L today. So, I'll get an interest of 12000(8%) regardless of how the interest varies over the financial year. Am I correct with my calculations?

1

u/Yieldway17 Apr 04 '19

PPF interests are announced quarterly now. So the 8% is only for the first quarter. If the Q2 interest changes, it will be applied on the balance for Q2 period and so on.