A reader asks, “Is it doable to make use of PPF as a supply of normal 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 shall be paid) and (2) with contributions (Rs. 500 min per yr).
“Extending a PPF account” account implies choice 2 with contributions each 5 years. This selection should be exercised inside one yr of maturity. After this, an “extension” won’t be doable.
Choice 1 with out contribution just 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 could be opened provided that that is closed.
Within the case of choice 2, yearly withdrawals are doable. Nonetheless, the whole quantity withdrawn in the course of the five-year block ought to be lower than or equal to 60% of the stability at first of this block.
For instance, allow us to assume we have now prolonged a PPF account for 5 years with a stability of Rs. 40 lakhs. We will maintain it alive with Rs. 500 a yr (that is small in comparison with the stability and shall be ignored within the illustration). We will assume that the curiosity throughout this era is 7% yearly (this will change each quarter). We assume a withdrawal equal to 7% of the excellent stability is made at first of every monetary yr.
The whole 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 The utmost quantity that may be withdrawn over the 5 years is Rs. 24 lakhs = 60% of Rs. 40 lakhs, the stability at first of the extension interval.
So, the 7% withdrawals can simply be pulled off. Even when the PPF rate of interest retains reducing by 1% each 5 years, the 7% annual withdrawal could be continued with out breaching the utmost allowed restrict. Naturally, the PPF corpus will even maintain diminishing!
It should be understood that this dialogue is just about PPF withdrawals and never about making an attempt to beat inflation after retirement with earnings from PPF. For the reason that most that one can spend money on PPF is just Rs. 1.5 lakh a yr, the utmost corpus that may be attained after 15 years is proscribed (even with a relentless rate of interest). Subsequently, the utmost withdrawal can 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 submit workplaces just isn’t identified. If an extension is not allowed, the subscriber can revert to choice 1 (maintain the account alive with out contributions) and step by step withdraw.
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