A reader asks, “Is it potential to make use of PPF as a supply of standard earnings? For instance, withdraw 7 per cent per yr”.
As soon as a PPF account has accomplished 15 years, there are two methods to maintain it alive: (1) With out additional contributions (curiosity will probably be paid) and (2) with contributions (Rs. 500 min per yr).
“Extending a PPF account” account implies possibility 2 with contributions each 5 years. This selection should be exercised inside one yr of maturity. After this, an “extension” is not going to be potential.
Possibility 1 with out contribution isn’t an “extension”, and the subscriber can withdraw any quantity as soon as each monetary yr till the corpus is totally depleted. A brand new ppf account will be opened provided that that is closed.
Within the case of possibility 2, yearly withdrawals are potential. Nonetheless, the full quantity withdrawn throughout the five-year block needs to be lower than or equal to 60% of the steadiness at first of this block.
For instance, allow us to assume now we have prolonged a PPF account for 5 years with a steadiness of Rs. 40 lakhs. We will hold it alive with Rs. 500 a yr (that is small in comparison with the steadiness and shall be ignored within the illustration). We will assume that the curiosity throughout this era is 7% yearly (this could change each quarter). We assume a withdrawal equal to 7% of the excellent steadiness is made at first of every monetary yr.
The full withdrawal made within the five-year block is Rs. 13.86 lakhs. The utmost quantity that may be withdrawn over the 5 years is Rs. 24 lakhs = 60% of Rs. 40 lakhs, the steadiness at first of the extension interval.
So, the 7% withdrawals can simply be pulled off. Even when the PPF rate of interest retains lowering by 1% each 5 years, the 7% annual withdrawal will be continued with out breaching the utmost allowed restrict. Naturally, the PPF corpus may even hold diminishing!
It should be understood that this dialogue is simply about PPF withdrawals and never about attempting to beat inflation after retirement with earnings from PPF. For the reason that most that one can spend money on PPF is simply Rs. 1.5 lakh a yr, the utmost corpus that may be attained after 15 years is restricted (even with a continuing rate of interest). Due to this fact, the utmost withdrawal can also be restricted – sometimes a lot smaller than a retiree’s annual bills. PPF can, in precept, be used as one supply of earnings from a diversified retirement portfolio.
Many banks don’t encourage limitless five-year extensions, though it’s legally allowed! The state of affairs with publish workplaces isn’t recognized. If an extension is now not allowed, the subscriber can revert to possibility 1 (hold the account alive with out contributions) and steadily withdraw.
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