[Amazing]

Originally Posted by diptimanraje

Sir, kindly comment & advice on my portfolio.

I am 36, my wife is 33 & our son is 7 years old.

For myself :
2. Ppf contribution rs.70000/- per year tenure 35 years from which completed 8 years.
For my wife :
2. Ppf contribution rs.70000/- per year tenure 35 years from which completed 8 years.
For our son :
16. Ppf contribution rs.70000/- per year tenure 56 years from which completed 3 years.
The above investments are made considering our respective retirement ( in between both of us rs.6 cr. )requirements & our sons education ( rs.35 lacs) *& his retirement requirement ( about rs.30 cr.).

Is this portfolio o.k. And are our goals achievable by following the above investments.
Please anybody advice.

Kindly comment & advice,
Thanks
D. R. Nimbalkar Khardekar
E- mail : diptimanraje@gmail.com

Well Diptimanraje, I have never seein , in my life such a long term planning in portfolio. Its excellent , if can be followed till the end as per plan.

Only I am wondering about the PPF plan ( which is done in post office / some nationalised banks) ..how can you have a tenure of 35 years/ 56 years ?
What I know is that, ppf is for initially 15 years and then extended in slab of 5 years each , upto max of 25 years.

Pls can anybody confirm if the PPF accounts can be extended upto such massive durations of 35- 56 years ? Really curious here since the maturity amounts are suppossedly tax free at the end (EEE concept) .

Just as an example , a consistent contribution of 70000/- throughout for 50 years @ avg int rate of 7-8% , will lead to a corpus of 50-60 lacs..will it still be tax free ?

[sgiitk]

Originally Posted by Amazing

What I know is that, ppf is for initially 15 years and then extended in slab of 5 years each , upto max of 25 years.

Sorry to corect you, the number of extensions of PPF are not limited. This was a misinterpretation by many PSU banks. I am myself on the 30-35 year window. Even the SBI website is now correct.

[Amazing]

Originally Posted by sgiitk

Sorry to corect you, the number of extensions of PPF are not limited. This was a misinterpretation by many PSU banks. I am myself on the 30-35 year window. Even the SBI website is now correct.

Yes the SBI website says like this :
PPF Duration
•15 years
•Can be extended for one or more blocks of 5 years
•Account can be discontinued but repayment of subscriptions along with interest only after 15 years.
************
Can you also let us know if the maturity amount whatever it is , at end of 30/40 years are fully tax exempted at the hands of the receiver / bank? I mean, plain tax free whole amount withdrawal ?

[sgiitk]

Originally Posted by Amazing

Can you also let us know if the maturity amount whatever it is , at end of 30/40 years are fully tax exempted at the hands of the receiver / bank? I mean, plain tax free whole amount withdrawal ?

Yes, it is. I first saw an article by Shanbagh in the Hindustan Times ages ago, which suggested that the managers who say 25 max deserve to be prosecuted. My own PPF was coming to 20 years, so I inquired from the local SBI and got the same old story. Then I pointed out what Shanbagh had written (gave the a photocopy) the reaction was that if Shanbagh writes then it must be true. The source of the mistake, the PPF regulations gave an example, 15 then 20 and then 25. They missed out the and so on part of this.

In fact the proposed DTC while increasing the PPF limit to 100k also does away with ELSS, NSC, etc. So they want you in the ppf.

It will be a big problem for the retirees. They closed their PPFs due to the misinterpretation, or need for cash. Now they will be left with no options. You can hardly expect a 65 year old to lock up his money for 15 years, by opening a fresh ppf account.

[Amazing]

Originally Posted by sgiitk

Yes, it is. I first saw an article by Shanbagh in the Hindustan Times ages ago, which suggested that the managers who say 25 max deserve to be prosecuted. My own PPF was coming to 20 years, so I inquired from the local SBI and got the same old story. Then I pointed out what Shanbagh had written (gave the a photocopy) the reaction was that if Shanbagh writes then it must be true. The source of the mistake, the PPF regulations gave an example, 15 then 20 and then 25. They missed out the and so on part of this.

In fact the proposed DTC while increasing the PPF limit to 100k also does away with ELSS, NSC, etc. So they want you in the ppf.

It will be a big problem for the retirees. They closed their PPFs due to the misinterpretation, or need for cash. Now they will be left with no options. You can hardly expect a 65 year old to lock up his money for 15 years, by opening a fresh ppf account.

Excellent info sgiitk ...useful , very useful.

Is it possible for you to share the link to Shanbag's write up on ppf or a scanned copy of that write up ? May be I am asking for too much , but who knows these info might save me/ others from any contradictions in case of extensions?

Btw, does the same rule apply for PPF in post offices ?

As you have fantastic knowledge on this area, I am putting across another question to you sgiitk ..regarding VPF (voluntary Provident Fund) where one can contribute certain amounts over and above his EPF deductions.
- Is there any limit in monthly contribution in VPF ?
- It is non-cntributory - right ?
- is the interest rate same as EPF ?
- Are the VPF maturity amount fully tax free , like the EPF and PPF amounts ?
- EPF account ceases on one's retirement , does the VPF also ceases at same time along with one's retirement ?
- Are there any risks involved in putting money in VPF accounts , as compared to EPF ( which is suppossedly safe) ?

[rishab.k]

Originally Posted by Amazing

Excellent info sgiitk ...useful , very useful.

Is it possible for you to share the link to Shanbag's write up on ppf or a scanned copy of that write up ?

Sandeep Shanbhag: Make no mistake, a PPF account is forever - Analysis - DNA

[Amazing]

Originally Posted by rishab.k

Sandeep Shanbhag: Make no mistake, a PPF account is forever - Analysis - DNA

Thanks Rishabh.

For benefit of all, I am just reproducing the contents here from above link [ (Copyright DNA India, Mr. Sandeep Shanbhag)

Make no mistake, a PPF account is foreverSandeep Shanbhag | Wednesday, August 17, 2011

Public Provident Fund (PPF) as a savings instrument needs no introduction —- it is already very popular with the salaried class and the business community alike. In fact, in past columns, I had written in detail about PPF and its post-maturity continuation facilities. However, reader feedback on a specific issue necessitates that the topic be revisited.

The instrument’s popularity is not surprising. Over 20 years, an annual contribution of Rs70,000 grows to over Rs32 lakh, which is almost 46 times the annual investment. This capital, built over time, can serve multiple purposes such as catering to the education of children, medical emergencies and even retirement.

But why did I say 20 years when the PPF is a 15-year scheme. It’s because, after the initial period of 15 years, one can keep extending the deposit for five years at a time.

In fact, this is where the magic of PPF truly begins. One need not start a fresh PPF account and continue it for all of 15 long years —- just extend the old one for five years at a time, indefinitely. This way, the same PPF account can be converted into a five-year deposit. What’s more, this comes with additional liquidity over that offered during the initial term. So, basically, you can convert your PPF investment into a five-year deposit that offers 8% tax-free interest, tax saving under Sec 80C and immense liquidity —- and all this for your lifetime.

Now, let’s briefly examine the rules of extension.
The PPF account can be continued (after the initial 15 years) with or without further subscription. However, once an account is continued without contribution for any year, the subscriber cannot change back to with-contribution extension. [Notification F.3(6)-PD/86 dt 20.8.86].

Coming to liquidity, an investor who is continuing his account with fresh subscriptions can withdraw up to 60% of the balance to his credit at the commencement of each extended period in one or more instalments, but only one per year. (Notification F.7/2/97-NS IIdt. 9.2.1998)

Say the initial term of your PPF account is ending on March 31, 2012. The balance at that time in the account is say Rs15 lakh. You may opt to continue the account for five more years (i.e. till March 31, 2017) and invest regularly as you have been. However, over the next five years, till March 2017, you may withdraw only Rs9 lakh, which is 60% of the balance standing to your credit on March 31, 2012.

But what if you wish to continue but not invest further? In other words, you may wish to earn the tax-free interest but may not wish to commit further funds. That too is possible. In case the account is extended without contribution, any amount can be withdrawn without restrictions. However, only one withdrawal is allowed per year. The balance will continue to earn interest till it is completely withdrawn. (Clarification 7 to Clause 9(3A) of the PPF Scheme, 1968)

Even NRIs can invest in PPF, provided the PPF account had been opened before the person became an NRI. In other words, as per Notification (GSR 585(E)) dated July 25, 2003, though NRIs are prohibited from opening a fresh PPF account, a resident who subsequently becomes NRI during the currency of its term or an NRI who has opened the account before the date of this notification may continue to subscribe till maturity on a non-repatriation basis.

This means, NRIs cannot open a new account or extend the scheme beyond its maturity. Such accounts opened by mistake after the respective dates of notifications shall be treated as void ab initio. As and when (and if) the error comes to light, the account shall be closed and the amount refunded to the depositor without any interest.

I was under the impression that these are aspects of PPF that are not commonly known amongst investors. However, it turns out that some bank branches too aren’t fully aware of these rules. Several readers have written in complaining that their bank has flatly refused to extend the account and instead want the investor to close the existing account and start a fresh one.

A reader points out that his bank has specified that an extension will be allowed only for two blocks of five years each, after which the account will have to be closed.

In another case, the bank official specifies that post 15 years, 60% of the closing balance may indeed be withdrawn, but this has to be done at one shot —- more than one installment will not be allowed.

Yet another bank dictates that withdrawal after maturity has to be done in a similar fashion as it was being done during the tenure of the scheme.

NRIs too aren’t spared. If the subscriptions are done through an NRO cheque, some bank officials refuse to accept the same saying PPF isn’t open to NRIs.

Space constraints preclude listing all of the complaints here. The issues do get resolved when the officials are shown the rule book, of course, but it is felt that given the popularity and demand for the instrument, some training in PPF rules will save valuable time for both depositors and the bank concerned.

The writer Mr. Shanbag is director, Wonderland Consultants, a tax and financial planning firm. He may be contacted at sandeep.shanbhag@gmail.com

[sgiitk]

An excellent discussion - more extensive than my old post by (I think) his father.
Only thing which cannot now open a PPF is an HUF. Existing ones <15 years continue till their logical end at 15 years, while those >15 years had to be closed and the money refunded on 31/3/11.

One thing more a PPF can be opened in the name of a minor (invoking the UNG clause) and then when he/she crosses 18 the UNG can be deleted. A nifty way of transferring money to GenNext.

[iamswift]

An interesting situation with ELSS.
We know that for tax saver fund, the lock-in is for three years.
Now, there is a growth option available for tax saver fund. In growth option, the profits are not paid back (dividend) to investors but is re-invested again. This re-investment has another three year lock-in period starting from date of investement.
For simplicity, lets assume at every year end, the profits are re-invested which will have another three years lock-in.
So someone investing in ELSS growth option can never pull out his complete investment?

Also, the same is applicable to ELSS funds with dividend-reinvest option.

Those who invest for tax saving should carefully choose funds with option of dividend-payout.

[Amazing]

Originally Posted by iamswift

An interesting situation with ELSS.
We know that for tax saver fund, the lock-in is for three years.
Now, there is a growth option available for tax saver fund. In growth option, the profits are not paid back (dividend) to investors but is re-invested again. This re-investment has another three year lock-in period starting from date of investement.
For simplicity, lets assume at every year end, the profits are re-invested which will have another three years lock-in.
So someone investing in ELSS growth option can never pull out his complete investment?

Also, the same is applicable to ELSS funds with dividend-reinvest option.

Those who invest for tax saving should carefully choose funds with option of dividend-payout.

Disagree with you and the above logic is incorrect.

From my personal experience I had invested in 2 ELSS , both with Growth options, funds of HDFC MF in year 2005 a lumpsum amount ( that famous HDFC Taxsavers and Long Term Advantage fund). After that , no investments made in next 4 years and then when the NAV was high in 2009, I simply took 100% of the accumulated maturity amount after 4 years.

it was that simple..happy investing in ELSS!

[iamswift]

Originally Posted by Amazing

Disagree with you and the above logic is incorrect.

From my personal experience I had invested in 2 ELSS , both with Growth options, funds of HDFC MF in year 2005 a lumpsum amount ( that famous HDFC Taxsavers and Long Term Advantage fund). After that , no investments made in next 4 years and then when the NAV was high in 2009, I simply took 100% of the accumulated maturity amount after 4 years.

it was that simple..happy investing in ELSS!

This is News to me. Thanks for the info.
How about dividend-reinvest option?

[huntrz]

Originally Posted by iamswift

An interesting situation with ELSS.
We know that for tax saver fund, the lock-in is for three years.
Now, there is a growth option available for tax saver fund. In growth option, the profits are not paid back (dividend) to investors but is re-invested again. This re-investment has another three year lock-in period starting from date of investement.
For simplicity, lets assume at every year end, the profits are re-invested which will have another three years lock-in.
So someone investing in ELSS growth option can never pull out his complete investment?

Also, the same is applicable to ELSS funds with dividend-reinvest option.

Those who invest for tax saving should carefully choose funds with option of dividend-payout.

Originally Posted by Amazing

Disagree with you and the above logic is incorrect.

From my personal experience I had invested in 2 ELSS , both with Growth options, funds of HDFC MF in year 2005 a lumpsum amount ( that famous HDFC Taxsavers and Long Term Advantage fund). After that , no investments made in next 4 years and then when the NAV was high in 2009, I simply took 100% of the accumulated maturity amount after 4 years.

it was that simple..happy investing in ELSS!

Actually both of you are right. Most of the growth funds just keep appreciating the NAV and you can withdraw all the units at the end of 3 years. But there was this horrible SBI Magnum taxgain. I have it in my portfolio and it is like an infinite loop. Its growth option was actually implemented as dividend reinvestment. So every year they will declare some dividend and automatically re invest them to buy their own (new)units and thus you have to wait another 3 years to withdraw these units recieved as dividend.

[rishab.k]

Originally Posted by iamswift

In growth option, the profits are not paid back (dividend) to investors but is re-invested again. This re-investment has another three year lock-in period starting from date of investement.

There are three options: Growth, dividend payout & dividend reinvestment.
In case of dividend reinvestment, the reinvested dividend amount gets locked for three years from the date it was reinvested.
In growth option, there is no dividend declaration & you can withdraw the total amount after the initial three years lock in period.

[sgiitk]

In any case I think dividend reinvest is best avoided. Avoid totally in an ELSS which is likely to go away in the new Tax Code.

Now with the proposed 5% tax on dividend distribution Growth (followed by periodic encashment) my be the preferred opton. Also, I hear it is relatively easy to change from Dividend Reinvest to Dividend Payout and vice versa in many funds, since the NAV stays the same!

However, I am told that the proposed dtc as put out may see extensive changes so better to watch and wait.

[yosbert]

Originally Posted by sgiitk

One thing more a PPF can be opened in the name of a minor (invoking the UNG clause) and then when he/she crosses 18 the UNG can be deleted. A nifty way of transferring money to GenNext.

I have a query regarding PPF account in name of minors. As I understand it, the total deposit I can make in PPF is limited to 70K across all the accounts. That is, the max amount that I can deposit in my account + my son/daughter's account is limited to 70K.
- Is that correct?
- If the above is true, what is the advantage of maintaining a separate account in name of a minor, as opposed to maintaining the entire amount in my own PPF account?