Public Provident Fund (PPF) is a popular long-term investment option in India, backed by the Government of India. It offers guaranteed returns and tax benefits, making it an attractive investment option for risk-averse investors. In this blog post, we will discuss everything you need to know about PPF, including its features, benefits, eligibility criteria, investment process, and frequently asked questions. Let us now learn more about PPF accounts, its features and benefits.
Let us now learn what is PPF and how it works!
What is Public Provident Fund (PPF)?
Public Provident Fund is a long-term investment scheme introduced by the Government of India in 1968 to encourage savings and investment among Indian citizens while also providing a secure and reliable investment option. It is a safe and secure investment option with a fixed rate of interest, currently at 7.1%, and the maturity of PPF account for a period of 15 years. Public Provident Fund scheme is managed by the National Savings Institute and Public Provident Fund accounts can be opened in designated post offices, nationalized banks, and authorized branches of State Bank of India and its subsidiaries.
Features of PPF
Here are a few features of Public Provident Funds (PPF):
- Minimum and maximum investment limits: The minimum investment amount is Rs. 500 per year, and the PPF maximum investment is Rs. 1.5 lakh per year.
- Interest rates: The current interest rate of PPF account is 7.1%, compounded annually.
- Tenure: The maturity period of PPF India account is 15 years, which can be extended in blocks of 5 years.
- Partial withdrawal: Partial withdrawals are allowed after 5 years from the end of the financial year in which the account was opened.
- Loan facility: Public Provident Fund account holders can avail of a loan facility from the third financial year of account opening to the end of the sixth financial year.
Eligibility Criteria for Investing in PPF
To open a PPF account in India, one must fulfill the following PPF eligibility criteria:
- Citizenship: Only Indian citizens are eligible to open a Public Provident Fund account.
- Age: A Public Provident Fund account can be opened by an individual above 18 years of PPF account eligibility age. Parents or guardians can also open a Public Provident Fund account on behalf of minors for a minor PPF account .
- Residency status: Resident Indians and Hindu Undivided Families (HUFs) are eligible to open a Public Provident Fund account.
Documentation Required to Open a PPF Account
The following are the documents required to open a PPF account:
- Proof of identity: PAN card, Aadhaar card, passport, voter ID card, or driving license.
- Proof of address: Aadhaar card, passport, voter ID card, driving license, or utility bills.
How PPF Works?
PPF accounts can be opened with a minimum deposit of Rs. 500 and a maximum deposit of Rs. 1.5 lakh per year. They have a PPF lock in period of 15 years, during which the account holder cannot withdraw the entire amount. However, partial withdrawals are allowed after 5 years of account opening. Interest rate of Public Provident Fund is fixed and reviewed every quarter by the Government of India. The current rate of interest on PPF account is 7.1%, compounded annually.
Tax Exemption on PPF
Investments are eligible for tax exemption on PPF under Section 80C of the Income Tax Act, and the interest earned on Public Provident Fund and the maturity amount are also tax-free.
To avail of the tax exemption benefits, an individual needs to submit Form H to their employer or the income tax department.
Challenges of Investing in PPF
PPF accounts come with certain challenges:
- Extended Commitment: Unlike alternatives like the ELSS with a three-year lock-in, a PPF demands a 15-year commitment. While premature withdrawals are possible, strict regulations apply. Ensure you’re ready for this long-term investment.
- Moderate Returns: The interest rate in PPF isn’t notably high for a long-term scheme. In contrast, ELSS has the potential for double-digit returns.
- Individual Ownership: Joint holding isn’t an option for PPF accounts, limiting the possibility of sharing an account with family members.
- Investment Cap: PPF allows a maximum annual investment of ₹1.5 lakh, whereas other instruments like ELSS, NPS, or FDs have no such limits, although the tax benefit remains capped at ₹1.5 lakh under Section 80C.
- NRI Constraints: NRIs can’t open new PPF accounts, restricting this option to resident Indians. If you transition from resident to NRI status, while you can continue deposits, new PPF accounts are off-limits.
Before diving in, carefully assess these factors to align your investment with your financial goals and circumstances.
Benefits of Investing in PPF
There are many PPF account benefits, including:
- Tax benefits: Public Provident Fund investments are eligible for PPF account tax benefits under Section 80C of the Income Tax Act. This means that you can deduct up to ₹1.5 lakh from your taxable income for investing in Public Provident Fund.
- Guaranteed returns: Public Provident Fund offers a guaranteed interest on Public Provident Fund is 8.5% per annum. This means that you can be sure of earning a fixed return on your investment, regardless of market conditions.
- Long-term investment: Public Provident Fund is a long-term investment PPF scheme details, with a lock-in period of 15 years. This means that you cannot withdraw your money from the scheme before the end of the 15-year period. However, you can withdraw your money after the 15-year period, subject to certain conditions.
- Flexibility: Public Provident Fund is a flexible investment scheme that allows you to make partial withdrawals and top-ups. You can also transfer your PPF account from one bank to another.
- Low-Risk Option- Public Provident Fund (PPF) is perfect for those seeking low-risk options. Mandated by the government, it ensures guaranteed returns, safeguarding the financial interests of the masses in India. Plus, PPF investments are not affected by market fluctuations.
Thus, consider diversifying your financial portfolio by opting for the PPF scheme. During economic downturns, PPF accounts offer stable annual returns, making them a reliable choice for investors.
How to Open a Public PF Account Online and Offline?
Here are the two ways on how to open a PPF account, both online and offline:
Account Opening Online
- Visit the official website of the bank or post office where you wish to open the account.
- Fill the online PPF account opening form with necessary details like name, address, nominee details, etc. via the Public Provident Fund account portal.
- Upload necessary documents like ID proof, address proof, photograph, etc.
- Transfer the minimum contribution in PPF amount required to open a Public Provident Fund account through online modes of payment like internet banking, credit/debit card, etc.
Account Opening Offline
- Approach any authorized bank or post office.
- Fill up the PPF account opening form.
- Provide the required documents, such as PAN card, Aadhaar card, and proof of address.
- Pay the initial deposit of ₹500.
- You can then start depositing money into your PPF account in multiples of ₹50.
How to Invest in Public Provident Fund Account?
Once you have opened a Public PF account, you can start investing in it. Here are the steps to invest in a Public Provident Fund account:
- You can invest in Public Provident Fund in the following ways:
1. Online: You can invest in Public Provident Fund online through the National Savings Institute (NSC) website.
2. Offline: You can invest in Public Provident Fund offline at any post office or authorized bank.
- Invest the maximum amount allowed: You can invest a maximum of ₹1.5 lacs in PPF every financial year. By investing the maximum amount, you can earn maximum returns. You can deposit money into your PPF account in lump sum or in instalments.
- Choosing the Investment Option: PPF offers two investment options – cumulative and non-cumulative. Under the cumulative option, the historical PPF interest rate is compounded annually and paid at maturity Under the non-cumulative option, the current PPF interest rate is paid out annually.
- Deposit the amount regularly: It is important to deposit the amount regularly in your PPF account. This will help you to earn compound interest and maximize your returns.
- Making Online Payments: Many banks offer the facility of making online payments to your PPF account. You can also set up standing instructions to deposit money into your PPF account automatically.
- Keep track of the account’s maturity date: Your PPF account will mature after 15 years. Make sure that you keep track of the account’s maturity date so that you can withdraw your money on time.
- Make informed decisions about loan and partial withdrawal facilities: PPF offers loan and partial withdrawal facilities. However, you should make informed decisions, with information about PPF, about using these facilities. Loan and partial withdrawal can reduce your returns.
Aadhaar and PAN Card Requirements for PPF
The Ministry of Finance’s latest notice requires you to provide your Aadhaar number and PAN when opening a new PPF account. If you don’t have an Aadhaar yet, submit proof of enrollment or an enrollment ID during account setup, and share your Aadhaar number with the Accounts Office within 6 months.
For existing PPF accounts without Aadhaar, it must be provided within 6 months from April 1, 2023. If PAN wasn’t submitted during account opening, it must be done within 2 months of exceeding Rs. 50,000 balance, Rs. 1 lakh credits in a financial year, or Rs. 10,000 monthly withdrawals. Failure to comply within the specified periods will render the account inoperable until both Aadhaar and PAN are submitted.
PPF vs. Other Investment Options
PPF is a popular investment option, but it is not the only option available. There are a number of other investment options that you can consider, such as fixed deposits, national savings certificates, and equity-linked saving schemes.
Fixed deposits are a type of investment that offers a fixed interest rate for a fixed period of time. They are a good option for investors who want to earn a guaranteed return on their investment.
National Savings Certificates
National savings certificates are a type of investment that is issued by the Government of India. NSCs offer a guaranteed interest rate and are exempt from income tax. NSCs are a good option for investors who want to save money for a long-term goal, such as retirement.
Equity-Linked Saving Schemes
Equity-linked saving schemes (ELSS) are a type of investment that invests in the stock market. ELSS schemes offer the potential for high returns, but they also carry the risk of loss. ELSS schemes are a good option for investors who are willing to take on some risk in exchange for the potential for high returns.
PPF is a great investment option, but it is not the only option available. Here is a comparison of PPF with other investment options:
PPF is a great investment option, but it is not the only option available. Here is a comparison of PPF with other investment options:
|Feature||PPF||Fixed Deposit||National Savings Certificate||Equity-Linked Saving Scheme|
|Lock-In Period||15 years||5 years||5 years||3 years|
|Tax Benefits||Tax-deductible up to ₹1.5 lakh||Taxable||Taxable||Taxable|
How to Withdraw from PPF Account?
PPF has a lock-in period of 15 years, and withdrawals can only be made after the maturity period is over. However, there are some exceptions where partial withdrawals are allowed.
Here are the steps to withdraw from PPF account:
- Visit the bank or post office where your PPF account is held.
- Fill up the PPF withdrawal form with necessary details like the amount to be withdrawn, account number, etc.
- Submit the form along with necessary documents like ID proof, address proof, etc.
What is the PPF Withdrawal Form?
For PPF withdrawal, you will need to complete Form 3/Form C. The form consists of these three following sections:
- Section 1: Mention your PPF account number, proposed withdrawal amount, and years since account opening.
- Section 2: Office Use – Provide account details, withdrawal history, and service manager’s signature.
- Section 3: Bank Details – Specify the bank for direct credit or issue of cheque/demand draft. Include a copy of the PPF passbook. Streamlining the process for a hassle-free withdrawal.
How to Close a PPF Account?
Following PPF regulations, full withdrawal of your Public Provident Fund account balance is permissible only after 15 years. Upon completion of this term, you can close the account and access the entire balance.
Before reaching the full tenure, complete withdrawal is not allowed. However, after 7 years, under specific conditions, a premature withdrawal of up to 50% is permitted.
To close your Public Provident Fund account after 15 years, follow these steps at the Post Office:
- Complete Form C with relevant details and attach your PPF passbook.
- Submit the form to the respective Post Office or bank branch.
- Your application will be processed, and the account will be closed, with the payment transferred to your linked savings account.
What is the Premature Closing of a PPF Account?
Can you close your PPF account after 5 years? Yes, you can. Premature closure is permitted in cases of serious illnesses affecting the PPF account holder, their parents, children, or spouse. Just provide documents from a qualified medical professional.
If you are planning your future studies, premature closure is also an option for PPF account for minors, adult account holders or the account holder themselves. Just submit the fee bill and admission confirmation from a recognized university in India or abroad.
How to Transfer a PPF Account?
To effortlessly shift your PPF account from one branch to another, follow these simple steps:
- Visit the bank or post office where your PPF account was initially opened.
- Complete the transfer application form.
- Submit the form, along with the necessary documents:
- Account opening application
- Certified copy of the account
- Nomination form
- DD or cheque for the outstanding balance
- Signature specimen
- Present the new branch with a new PPF account opening application, your old PPF account passbook, and supporting documents.
- Once processed, your PPF account transfer will be successfully completed.
How to Extend Your PPF Account?
A PPF account matures 15 years from the end of the fiscal year it was opened. Upon maturity, the account holder can extend it indefinitely in 5-year increments. To do this with contributions, submit Form H within a year of maturity; otherwise, default to extension without further contributions.
When extended with contributions, you can withdraw a maximum PPF contribution of 60% of the balance at the extension date, either in a lump sum or over multiple years, with one withdrawal allowed annually.
Opting for extension without further contribution is automatic if no choice is made; no form is required for this option. You can withdraw up to the entire balance once a year. Once the PPF account is renewed, the choice cannot be switched – either with or without contributions remains fixed.
Loan against Public Provident Fund
Public Provident Fund account holders can avail of a loan against PPF account after completion of 3 years from the date of opening the account. The maximum loan amount that can be availed is 25% of the balance at the end of the second year. The interest rate for the loan is the same as the interest rate for PPF.
To Wrap It Up…
A Public Provident Fund is a good investment option for investors who want to save money for a long-term goal, such as retirement. PPF offers a number of benefits, such as tax benefits, guaranteed returns, and flexibility. However, it is important to remember that Public Provident Fund is a long-term investment scheme and you cannot withdraw your money before the end of the 15-year period.
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No, NRIs cannot open PPF accounts.
The maximum contribution PPF limit for PPF accounts is ₹1.5 lakh per financial year.
Yes, PPF accounts can be opened jointly by two adults. However, both individuals must be Indian citizens and they must be related to each other, such as husband and wife, parents and children, or siblings.
Yes, PPF accounts can be extended beyond the initial investment period of 15 years. You can extend your PPF account for a maximum of five more years, up to a total of 20 years. However, you will need to pay an additional 1% interest per annum on the amount that you extend.
You can check your PPF balance online or by visiting your nearest post office. To check your balance online, you will need to login to your PPF account on the official website of the government of India. To check your balance by visiting your nearest post office, you will need to provide your account number and your PAN card.
Public Provident Fund interest rate in post office is currently at 7.1%.
The government’s savings scheme, PPF, offers attractive interest rates and investment returns, making it a crucial component for retirement planning.
Yes. If you have contributed successfully to the PPF for 5 years, then you may withdraw it.
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