Investing in a PPF or Public Provident Fund is one of the safest and most popular ways to save money for the long-term in India. It is a government-backed scheme that offers an attractive interest rate and tax benefits, making it an ideal investment option for individuals who want to save for their future financial goals.
What is PPF?
PPF is a long-term investment scheme introduced by the Government of India in 1968. It is a savings scheme where an individual can invest money for a fixed period of 15 years, and the investment earns interest at a fixed rate, which is announced by the government every quarter.
The minimum investment amount in PPF is Rs. 500, and the maximum investment amount is Rs. 1.5 lakh per annum. The investment made in PPF is tax-free, and the interest earned on the investment is also tax-free. The interest rate offered on PPF is higher than most other savings schemes offered by banks and other financial institutions.
Features of Public Provident Fund ( PPF )
Public Provident Fund (PPF) is introduced by the Indian Government to provide financial security and encourage savings among individuals. Some of the key features of PPF are:
- Eligibility: Any resident individual in India can open a PPF account in their name. Non-resident Indians (NRIs) are not eligible to invest in PPF.
- Investment Limit: The minimum investment in PPF is Rs. 500 per year, and the maximum investment allowed is Rs. 1.5 lakh per year.
- Investment Period: The investment period in PPF is 15 years, and the account can be extended for a further 5 years on maturity.
- Interest Rate: The interest rate on PPF is fixed by the government and is currently at 7.1% per annum, compounded annually. The interest rate is subject to revision every quarter.
- Tax Benefits: The investment made in PPF is eligible for a tax deduction under Section 80C of the Income Tax Act, and the interest earned and the maturity amount is also tax-free.
- Withdrawal: Withdrawal from a PPF account is allowed after completion of the 5th financial year. Partial withdrawal up to 50% of the balance at the end of the 4th year or the preceding year, whichever is lower, is permitted.
- Loan Facility: Investors can avail of a loan against their PPF account from the third financial year up to the sixth financial year, subject to certain conditions.
- Nomination Facility: A PPF account can be opened with a nomination facility, allowing the account holder to nominate a person to receive the accumulated balance in case of their death.
- Transferability: A PPF account can be transferred from one post office or bank branch to another or from one person to another, subject to certain conditions.
Benefits of PPF
PPF offers a host of benefits to investors, some of which are:
- Tax Benefits: The investment made in PPF is eligible for a tax deduction under section 80C of the Income Tax Act, 1961. The interest earned on the investment and the maturity amount are also tax-free.
- Attractive Interest Rate: The interest rate offered on PPF is fixed by the government every quarter and is higher than most other savings schemes offered by banks and other financial institutions.
- Long-term Investment: PPF has a fixed investment period of 15 years, making it an ideal investment option for individuals who want to save for their long-term financial goals.
- Low Risk: PPF is a government-backed scheme, making it a low-risk investment option.
- Loan Facility: Investors can avail of a loan against their PPF account after three years of opening the account.
How to open a PPF account?
PPF account can be opened at any post office or any designated branch of a public sector bank in India. The following documents are required to open a PPF account:
- PPF account opening form
- ID proof – Aadhaar card, PAN card, Voter ID card, Passport
- Address proof – Aadhaar card, Voter ID card, Passport, Utility bills
- Passport size photographs
The account can also be opened online through the net banking facility of the bank.
PPF withdrawal rules
PPF or Public Provident Fund is a long-term savings scheme, where individuals can invest money for a period of 15 years to earn tax-free interest. While the investment period is fixed, there are certain withdrawal rules that allow individuals to access their funds in certain circumstances. Here are some important PPF withdrawal rules:
- Partial Withdrawal: An individual can make a partial withdrawal from their PPF account after completion of the 5th financial year. The maximum amount that can be withdrawn is up to 50% of the balance at the end of the 4th year or the preceding year, whichever is lower.
- Premature Closure: An individual can prematurely close their PPF account after completion of 5 years from the date of account opening in case of a medical emergency or higher education of the account holder or their dependent children.
- Loan Against PPF Account: An individual can take a loan against their PPF account after completion of the 3rd financial year up to the 6th financial year. The loan amount is limited to 25% of the balance in the PPF account at the end of the 2nd financial year preceding the year in which the loan is applied for.
- Maturity Withdrawal: On maturity, an individual can withdraw the entire balance in their PPF account, including the principal and the interest earned, without any tax liability.
- Extension of PPF Account: After maturity, an individual can extend their PPF account for a period of 5 years with or without making fresh contributions. During this period, the account holder can make only one withdrawal in a financial year.
- Nominee Withdrawal: In case of the death of the account holder, the nominee can withdraw the entire balance in the PPF account.
In principle, PPF offers flexible withdrawal rules that allow individuals to access their funds in case of an emergency or for higher education. However, premature withdrawal or closure of the account may lead to loss of interest and tax benefits. It is important to read the terms and conditions before investing in PPF and consult a financial advisor if necessary.
Frequently Asked Questions ( FAQ )
Q: What is PPF?
A: PPF stands for Public Provident Fund. It is a long-term savings scheme introduced by the Indian Government to provide financial security and encourage savings among individuals.
Q: Who is eligible to open a PPF account?
A: Any resident individual in India can open a PPF account in their name. Non-resident Indians (NRIs) are not eligible to invest in PPF.
Q: What is the investment limit in PPF?
A: The minimum investment in PPF is Rs. 500 per year, and the maximum investment allowed is Rs. 1.5 lakh per year.
Q: What is the investment period in PPF?
A: The investment period in PPF is 15 years, and the account can be extended for a further 5 years on maturity.
Q: What is the interest rate on PPF?
A: The interest rate on PPF is fixed by the government and is currently at 7.1% per annum, compounded annually. The interest rate is subject to revision every quarter.
Q: Is the investment made in PPF eligible for a tax deduction?
A: Yes, the investment made in PPF is eligible for a tax deduction under Section 80C of the Income Tax Act.
Q: Is the interest earned and the maturity amount in PPF tax-free?
A: Yes, the interest earned and the maturity amount in PPF is tax-free.
Q: Can an individual make a partial withdrawal from their PPF account?
A: Yes, an individual can make a partial withdrawal from their PPF account after completion of the 5th financial year. The maximum amount that can be withdrawn is up to 50% of the balance at the end of the 4th year or the preceding year, whichever is lower.
Q: Can an individual take a loan against their PPF account?
A: Yes, an individual can take a loan against their PPF account after completion of the 3rd financial year up to the 6th financial year.
Q: Can an individual prematurely close their PPF account?
A: Yes, an individual can prematurely close their PPF account after completion of 5 years from the date of account opening in case of a medical emergency or higher education of the account holder or their dependent children.
Q: Can an individual extend their PPF account after maturity?
A: Yes, an individual can extend their PPF account for a period of 5 years with or without making fresh contributions.
Q: What happens to the PPF account after the death of the account holder?
A: In case of the death of the account holder, the nominee can withdraw the entire balance in the PPF account.
Conclusion
PPF is a popular investment option among Indians, primarily due to its tax benefits, attractive interest rate, and low-risk nature. It is a long-term investment scheme that helps investors save for their future financial goals. However, before investing in PPF, it is important to understand the scheme’s terms and conditions and consult a financial advisor if necessary.
Low risk investments for first time investors ( or anyone risk averse )
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