The Public Provident Fund (PPF) is one of India’s most popular government investment schemes. It offers features and benefits that suit investors of different age groups. Being a long-term investment scheme, it can help fulfill various long-term goals such as retirement, a child’s marriage, and being financially independent. In this article, we have explained in detail the features, benefits, and eligibility criteria for investing in PPF.
What is PPF?
Public Provident Fund is a long-term savings scheme launched in 1968 by the government with the aim of mobilizing savings and encouraging investing. It is regulated by the Government of India and the Ministry of Finance.
The scheme pays a fixed interest to its investors every year on March 31st. A fixed return, along with sovereign backing, makes this scheme a low-risk investment. PPF also offers tax benefits on investment, interest and maturity amounts. This investment best suits individuals looking for low-risk investment options to fulfill their long-term financial goals and take advantage of its tax benefits.
Features and Benefits of Public Provident Fund (PPF)
The following are the features and benefits of PPF.
Deposits
Your PPF investments can be in a lump sum or multiple instalments (maximum of 12). The minimum deposit is Rs 500, and a maximum of Rs 1,50,000 per financial year. Any investment beyond Rs 1,50,000 will not earn any interest.
You must invest at least a minimum of Rs 500 in your PPF account to keep it active. If you fail to do so, the account will be deactivated. You will have to pay INR 50 as a penalty and INR 500 for that specific year to reactivate it.
You can open only one PPF account, but you can also open another account in the name of a minor.
Interest Rate of PPF
The current PPF Interest Rate is 7.10% p.a. (as of Q4 FY 2023-24). Interest payments are scheduled annually on March 31st. The interest is computed monthly based on the minimum PPF balance observed between the 5th and 30th of each month. The PPF Interest rate is revised every quarter by the Ministry of Finance.
Tenure of PPF
The Public Provident Fund account has a lock-in period of 15 years. Upon maturity, you can choose to extend the investment in blocks of 5 years. You do not have to make any additional investments during the extension period. At maturity, that is, after 15 years, you can withdraw your entire corpus by submitting the PPF withdrawal form. In case you do not withdraw your money, you will continue to earn interest on your investment at the current interest rate. However, you will not be able to contribute to your PPF account until and unless you apply for an extension of the tenure.
Loan Against PPF
PPF gives an option to secure a loan against your PPF investments. You can avail of this facility online through the bank’s website between the third and fifth years. The loan amount is capped at 25% of the investments made after the second financial year.
Furthermore, a second loan can be obtained after the sixth financial year. It’s important to note that the first loan against the PPF account must be fully repaid before being eligible for the second loan.
Tax Benefits
Investments in PPF fall within the Exempt – Exempt – Exempt (EEE) category. Simply put, the investments, interest, and maturity amount are all exempt from taxation.
Investments up to INR 1,50,000 p.a. are eligible for tax deductions under Section 80C of the Income Tax Act, 1961. The interest on PPF accounts is paid annually on March 31st, and the interest earned is entirely tax-exempt. Additionally, the maturity amount at the end of the lock-in period (15 years) is completely tax-free.
Premature and Partial Withdrawals
Partial withdrawals are allowed after five years. However subject to specific rules:
- Up to 50% of the PPF balance at the end of the 4th year or
- 50% of the balance from the preceding year
Whichever is lower can be withdrawn and credited to the savings account.
You can prematurely close your PPF account under certain conditions five years after the account opening. This includes life-threatening illness of the account holder, spouse, or dependent children, funding higher education, or a change in residency status.
All premature closures attract a 1% interest penalty.
Account Transfer
You can easily transfer your PPF account from one bank or post office to the other.
Eligibility Criteria for PPF
To be able to invest in PPF, it is important that you meet the eligibility criteria. The following are the eligibility criteria to invest in PPF.
All Indian citizens, adults and minors can invest in the scheme. In the case of minors, a legal guardian can open the account.
Non-resident Indians (NRIs) and Hindu undivided Families (HUF) are not allowed to invest in PPF. If they have a PPF account in their name, they can keep it active until the end of the tenure. However, they won’t be able to extend the tenure further.
Documents Required to Open a PPF Account
To open a PPF account, you need the following documents:
- PPF Scheme Application form
- Identity Proof (Aadhaar Card, PAN Card, Passport, or Driver’s license, etc.)
- Address Proof (Aadhaar Card, Passport, etc.)
- Signature Proof
- After submitting the required documents, you must deposit the investment amount to initiate the PPF account opening.
How to Invest in PPF?
You have two options for opening a PPF account: online or offline. Before applying, ensure you meet the eligibility criteria.
Opening a PPF Account Online:
- Log in to your internet or mobile banking.
- Navigate to ‘Open a PPF Account’ and choose ‘self account’ or ‘Minor Account’ if opening on behalf of a minor.
- Fill in the application form with details like date of birth, PAN, name, address, Aadhar number, estimated yearly investment, etc.
- Set up a standing instruction for the bank to debit the invested amount.
- Verify the application through OTP received on your registered mobile number or email.
- Upon successful creation, you’ll receive a confirmation email.
Opening a PPF Account Offline:
Visit the nearest post office or participating bank branch to apply offline. Submit the application form along with the required documentation.
The authorized banks for PPF accounts are:
- Axis Bank
- Bank of Baroda
- Bank of India
- Bank of Maharashtra
- Canara Bank
- Central Bank of India
- HDFC Bank
- ICICI Bank
- IDBI Bank
- Indian Bank
- Indian Overseas Bank
- Kotak Bank
- Punjab National Bank
- State Bank of India
- Union Bank of India
Conclusion
The Public Provident Fund is a low-risk, fixed-return investment scheme backed by the government. It is suitable for investors who prefer earning a fixed return on their investments. However, it is important to note that PPF has a long tenure, and the investment is locked in until retirement. Although premature withdrawals are allowed, there are several conditions for it. Hence, before considering PPF for investment, comparing it with other alternative investments is important.
Frequently Asked Questions (FAQs)
How can I activate an inactive PPF account?
If you fail to invest a minimum amount of Rs 500 in a financial year, your PPF account will be discontinued, though it will not be closed. In such instances, obtaining a loan or withdrawing the PPF amount is not possible until the PPF account is active. Additionally, opening another PPF account is not allowed while the existing one is in a discontinued state.
Is it mandatory to withdraw the PPF account balance at the end of the 15 years?
You can choose not to withdraw your PPF investment at the end of 15 years. You have the option to keep the funds in the account, allowing them to accrue interest, as long as you eventually decide to close the account.
Is there a limit to how many times I can extend the PPF tenure in blocks of five years?
There is no upper limit on the number of extensions you can make as long as each extension is done in blocks of five years. However, you can only extend the tenure upon completing each five-year block.
How to convert a minor’s PPF account into a major’s?
If the minor reaches the age of 18 or attains majority, you can transition the account status from minor to major. You must submit a revised application form with proof of age of the minor.
Can I invest more than 1.5 lakh in PPF?
The maximum investment limit in PPF is Rs 1,50,000 per year. And the interest is only paid on this amount. Any additional investments do not accrue interest.
Can I hold 2 PPF accounts?
No. You can have only 1 PPF account in your name. Alternatively, you can open another PPF account in the name of a minor.
