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Though there is a hype of certain types of investments nowadays, some schemes launched by the government are still considered the best safety net for long-term investments. One of which is PPF (Public Provident Fund).
Not only this investment plan makes you financially secure but also brings you lots of benefits with a decent interest rate. Want to know more about PPF? Read through!
Public Provident Fund is simply defined as Exempt, Exempt, and Exempt (EEE) as it offers exceptional tax benefits to its subscribers under Section 80C. This popular long-term investment scheme was launched by the Government of India, offering financial security with reasonable interest rate and returns that are fully exempt from tax.
Under the PPF scheme, the subscriber is assured a guaranteed return every year on the amount deposited by them. Earlier, the interest rate was revised every year. However, now, to keep in line with the market, it is set every quarter offering a chance to yield high returns.
Tip: If you are planning to open a PPF account, ensure to deposit before 5th of every month. The catch here is that the interest on PPF deposits is calculated between the fifth and at the end of the month. Therefore, if you deposit the amount before 5th, you will get the maximum amount of interest on your investment.
A PPF account can be started at any authorized bank. The documents required for a PPF account includes:
Important Note: All the documents have to be self-attested, and originals must be taken along while opening the account.
The interest rate in PPF (Public Provident Fund) is determined by the government every quarter based on the prevailing market rates. As of now, the interest rate is a PPF is 7.1% p.a., compounded annually. This means that the interest earned on the PPF balance is added to the principal amount at the end of each year and earns interest in the subsequent years. The interest rate in a PPF may vary from time to time, however, it is generally higher than the inflation rate and most bank fixed deposits.
PPF is a government savings scheme offered by banks and post offices. Some banks do not offer PPF accounts. You can find a list of banks that offer PPF accounts below.
You have to deposit a minimum ₹500 every financial year into your PPF account, or it will become inactive. An inactive account still earns interest until it matures. However, you cannot take loans against your PPF account if it is not active.
Revival of inactive accounts means reactivation. If your PPF account has been deactivated, then in that case, you can revive your PPF account by submitting a written application where the account is opened. Along with the application, you are required to pay a penalty of Rs. 50/- for each year of default and Rs. 500/- for each year as an arrear payment.
After the application and cheque deposit is complete, the bank or post office branch will review your records. If the lock-in period of 15 years is complete the account can’t be reactivated.
The amount available in the PPF account of any person is not liable for attachment by any court in India. In case you are facing any non-compliance on financial commitment like failure of repayment of loan etc., in that case, the court may order to freeze your assets, but the balance available in PPF account cannot be attached by the court. This was a positive move taken by the government to encourage investment in PPF accounts.
Investments are usually made with the purpose to grow capital on finance or to acquire tax benefits. Mentioned below are some of the benefits a PPF scheme offers:
Small Investment, Good Returns:
PPF account is a real lifesaver when it comes to small investments. It has a minimum limit of Rs 100 per transaction and allows up to 12 transactions per year. You can also add a lump sum amount at any time in a financial year, provided it is within the limits of your account.
Flexible Installments:
With a PPF account, you get the flexibility of investment. You can invest with as little as Rs 500 to up to Rs 1,50,000 in a year. Not only in investment, but it also allows you flexibility on maturity. Once the account has matured after 15 years, you can simply withdraw the amount, or you can extend it for a further five years.
Easy Loan Option:
PPF account allows you to take a loan after two years. You can withdraw up to 25% of the previous year’s balance from 3rd year onwards. A secure credit is available from 3rd year to 6th year. Once the loan is taken, it can be repaid within 36 months, and the rate of interest is charged at the rate of 1%.
Numerous Tax Benefits:
The best thing about earnings from the PPF account is that it is completely tax-free. All the deposits you make in your PPF account are eligible for tax deductions under Section 80C. So, you can save up to Rs 1,50,000 per year. Not only the interest that is earned yearly but also the total amount on maturity is completely tax-free. So, it’s an overall win-win game.
Risk-free Returns:
If you are looking for risk-free, government-backed investment plans, PPF would be the ideal deal. The money you invest is completely secure, and it also fetches you a reasonable rate of interest compounded annually. It has a facility of partial withdrawals and loans. It is one of the most recommended schemes and has been trusted by people for many years.
Unfortunately, only one PPF account can be opened under an individual’s name. However, you can open and operate a PPF account on behalf of a minor until he/she attains maturity.
Opening a PPF account is like opening any other bank account. You must have a PAN card number. However, if you do not have one or it is still in process, you can declare it in Form No. 60 and get your new PPF account opened!
PPF is an individual account, and it cannot be opened in the name of more than one person.
Yes, any of the two parents or a legal guardian to the minor can open a PPF account for them. The parents or guardians will be required to submit their documents along with the birth certificate of the minor.
You can invest a minimum of 500 rupees to a maximum of 1,50,000 rupees in one financial year the PPF account.
Though you can make more than one deposit in a month, the total number of deposits cannot exceed 12 in a financial year.
Unfortunately, you cannot claim tax benefits in this case. Though tax laws permit you to claim 80C tax benefits for deposits into your spouse’s account, the same decree does not apply in the case of parents, siblings, or relatives.
A Public Provident Fund (PPF) account matures post-completion of 15 years from the end of the year in which it was opened. Fifteen years is the locking period of any PPF account.
Withdrawal is a simple drawing of a certain amount from your account that you are not liable to pay back. However, when you are applying for a loan against your PPF account, you are responsible for paying the loan amount along with interest.
You can apply for a loan up to 25% of your total amount collected by the end of the immediate 2nd preceding year.
While earlier there was no provision of premature closure or termination of the PPF account except in the case of death, it is now possible under certain circumstances.
According to the PPF amendment scheme 2016, closure or termination of a PPF account is possible, if the account holder has completed five financial years, where:
No, it is not binding to withdraw the investment amount on maturity. If you wish to extend the tenure of the PPF account, it can be continued for five years as five years of extension is available.
The extensions can last with or without any deposits. However, you will continue to receive interest on the amount even during the extension period.
A penalty of Rs. 50 will be charged every year if you fail to deposit the minimum amount of Rs. 500.
Yes, your PPF account can be transferred to any bank of your choice and it will be considered as a continuing account.
Yes, your PPF account number will change if you transfer your account from one bank to another.
Your legal heirs or nominee can claim the amount of your PPF account.
Well, in such cases, the minor is treated as a benefactor. The amount in the PPF account only becomes payable on the death of the benefactor as per Section 8 of the PPF Act.
However, the account of the minor remains functioning and a new account need not be opened. The surviving guardian or a custodian appointed by an expert court may continue the minor’s PPF account after submitting the required guardianship certificate.
