Public Provident Fund (PPF) is a saving scheme or even known as one of the better investment options at the present date. It is introduced with the motive of increasing the small savings in the form of investment and also assuring a decent return on it. ie) it combines tax savings, return, and safety in a single saving scheme.
This is one of the popular long-term savings options available in India. This will be quite useful in the post-retirement time. If you are looking for safe investment options with tax-free features, safety features, and a decent return then the Public provident fund (PPF) must be a great option for your expectations.
Table of Contents
1) What is Public Provident Fund (PPF)?
Public Provident Fund (PPF) got introduced in 1968 by Finance Ministry’s National Savings Institute. It is particularly introduced for long-term savings that offer attractive interests and returns. Here the return and the interest earned through PPF are won’t taxable under Income tax.
The benefits of PPF include safety returns, attractive interest rates, and taxation. This will be a good financial supporter at the time of retirement. You are allowed to open a PPF account under this government scheme only. You need to meet the following eligibility criteria to open a PPF account.
2) How to open a PPF account?
PPF account can be opened only by individuals. No joint account is allowed in cases of a PPF account. Individuals can open PPF account in any Post office and in any nationalized banks like State Bank of India, Punjab National Bank, etc…However certain private banks also providing PPF account facilities. Some of the private banks include HDFC Bank, ICICI Bank, and Axis bank.
2.1) Documents required
- First, you need to fill the application form to open a PPF account.
- You need to submit an Aadhar card and Permanent Account Number (PAN) card as identity proof.
- Also, you can attach some other identity proofs such as Passport, Smart card, etc…
- Finally, you should need to attach your address proof with your current address.
- Then you need to submit your signature proof.
These are known as KYC documents which are needed to be attached while submitting the application form. After the submission of documents, verification is being carried out. Then you need to deposit the minimum amount in your PPF account as mentioned. Also, you can deposit more than the minimum amount as it depends upon you.
3) What are the eligibility criteria for a PPF account?
To open a PPF account you need to comes under these below-mentioned eligibility criteria. The eligibility criteria are
- You can open a PPF account only if you are an Indian.
- In your lifetime you can only open one PPF account unless your second PPF account is in the name of the minor.
- If you are an NRI or HUF, you’re not eligible to open a PPF account.
After account opening, you will be provided with a passbook for your PPF account.
4) How to close a PPF account?
- You are not allowed for withdrawing the total balance from a PPF account before its tenure period of 15 years.
- After the completion of the tenure period, you can access the balance. You can withdraw the balance and shut the account.
However, 50% withdrawal of the balance is allowed after certain years from the date of account opening. ie) five years from the date of opening. Note that only under considerable situations you are allowed to withdrawal 50% of the balance. Otherwise, you couldn’t access it before the tenure period.
4.1) Premature closing of PPF account
There are certain specified conditions under which premature closing of the PPF account is allowed.
- After the completion of 5 years, an individual can opt for premature withdrawal.
- You can opt for premature withdrawal if you need to treat the disease that possesses a serious threat or any harm to the life of the account holder or the account holder’s spouse, parents, and children.
- For these, you need to submit a document from an authorized medical practitioner.
- If you have a minor account, you can opt for premature withdrawal in the case of higher studies.
- For this, you need to submit the college admission form, fees details to the respective post office or bank.
These are the certain specified conditions for the premature closure of the PPF account.
5) What is the interest rate on PPF?
The interest rate for the quarterly (from 1 July 2021 to 30 September 2021) is 7.1% pa. This is the current interest rate of PPF. The Finance Ministry set the interest rate every year to be paid on 31 March.
If you find it difficult to calculate own interest rate of your account, then you can use the PPF calculator to sort out this problem. This will enable you to calculate the interest and the return of your PPF account.
6) What are the benefits of a PPF account?
As said earlier PPF comes with a lot of benefits. These benefits make the PPF one of the safest options to invest in. below mentioned are the benefits of PPF
6.1) Interest rate Benefits of PPF
As said earlier interest rate of PPF is revised by Indian Finance Ministry every quarter. If you analyze the previous PPF interest rate it will be around 7.6% to 8%. The increase and decrease of interest rates always directly depend upon the overall economic scenarios.
For example, the current interest for this quarter ( from 1 July to 20 September ) is 7.1%. This interest is the same for the quarter from October to December in 2020. The interest rate picks 7.95 at the first quarter of 2020 ( from 1 January to 30 March). Similaryinterst on the first quarter of 2019 is 8.0% ( from 1 January to 30 March).
These interests are compounded annually. If you compare these interests with other investments and saving options like FD and RD, PPD remains as best in the interest rate and return. Note that if you kept your account status inactive then your account won’t earn interest during this period.
6.2) Tenure extension
The tenure of PPF is 15 years. Tenure is nothing but the maturity period of your PPF account. Only after the completion of PPF tenure, you are allowed to withdraw the total balance from your account. The amount will be withdrawn under the exemption of tax.
If you wish to extend the tenure of the PPF account, you are allowed to do an extension for the next five years. You can only extend in the block of five years. No other extension options are allowed for the PPF account.
6.3) Security of PPF account
As mentioned before it is introduced to increase the mobility of savings and investment for all types of people. This will attract middle-class people as well as the financially weaker section. As the limit of deposit amount ranges from Rs 500 to Rs 1,50,000 p.a. Following are the reasons that people consider PPF as a secured investment
- As it is an Indian government-supported savings scheme, people are more likely to save using PPF by considering it as a safe investment.
- Usually, people who are not willing to take risks by investing in other options which have fixed interests like Fixed deposits, Mutual Funds, and Recurring deposits are more likely to invest in a PPF account.
- As the interest of PPF is backed up by a sovereign guarantee which makes it safer than bank interest.
- In comparison to Fixed Deposit, Deposit Insurance And Credit Guarantee Corporation (DICGC) will insure only up to 1 lakh.
6.4) Loans against PPF
If you have a PPF account you are allowed to take loans against the PPF account at an agreeable interest rate. This feature of taking a loan against a PPF account will be available only from the 3rd to 6th year of account opening.
If you need to take a short-term loan without any collateral security then this will be a better option. The things you need to know before taking a loan against PPF are
- The limit of taking a loan is 25% of your balance at the end of the 2nd financial year.
- Your time for repaying this loan is 36 months. For example. If your loan got sanctioned on 28th June then your tenure for a loan will start from 1st July
- The interest of the Loan varies from the PPF interest. It will be 2% higher than the actual PPF interest. For instance, if your PPF interest is 7 % then your loan’s interest will be 9%.
The main advantage of taking loans against PPF is their interest rate which is lower than the general interest charged by banks. Also, there is no need of submitting any additional security.
6.5) Partial withdrawals
You can’t withdrawal your balance or any kind of partial withdrawals as per your wish like your savings account. As the tenure of PPF is 15 years you can withdrawal the total balance only after this tenure. After the completion of 4 years, you are allowed to do partial withdrawals from 5 th financial year.
For Example, if you have started investing in your PPF account by 2015 then you are allowed to do partial withdrawals from 2020-2021. Also, you can withdraw only 50% of the total balance.
For partial withdrawal, you need to fill the C form. It contains fields such as
- The first field that requires your account number, how much amount should need to be withdrawn?
- There must be a declaration to confirm that you have not withdrawn any amount during that financial year,
- When you are a minor, you need to submit additional security to ensure that the minor is still minor and alive.
- You also need to submit the passbook along with the form.
6.6) Pension tool
As it is a long-term savings tool it will be the best option for your post pension plans. You can extend your period of tenure by withdrawing only the interest with a tax exemption by keeping the principal amount in the PPF account.
For Example, let us assume that you have invested 1 crore on your public provident account (PPF) account. Consider the interest of PPF as 7.1%. Then you will earn 8.5 lakhs per annum as interest. This will be helpful in your pension life.
In other pension plans, you need to pay the tax for the invested amount and the return on it. But in PPF you can enjoy the tax exemption wick makes it user friendly than other pension plans.
7) What are the disadvantages of the Public Provident Fund (PPF)?
Fewer disadvantages of PPF include
- It has a fixed interest rate.
- In the shorter term, it can’t able to generate returns like mutual funds and NPS. but in the longer-term PPF works better.
- Withdrawal of the amount from the PPF account seems to be a little bit difficult.
Hereby concluding that, if you need a safe investment option with decent returns then you can surely opt for public Provident Fund (PPF). Also, the deposition limit ranges from Rs 500 to 1.5 lakh pa. Most importantly you can extend the tenure in the block of 5 years to continue the savings.
No, you are not allowed to open a joint PPF account. If you wish to open a PPF account you would need to open it as an individual account.
If you don’t make any minimum investment of Rs 500 for the past year then your account will be considered to be inactive. You are asked to pay a fine amount along with the minimum amount to reactivate your PPF account.