Public Provident Fund ( PPF ) was introduced in India in 1968 with the objective to mobilize small saving in the form of an investment, coupled with a return on it. It can also be called a savings-cum-tax savings investment vehicle that enables one to build a retirement corpus while saving on annual taxes. Therefore, anyone looking for a safe investment option to save taxes and earn guaranteed returns should open a PPF account.

1. How to open a PPF account?

A PPF account can be opened with either a Post Office or with any nationalized banks , private banks among others are authorized to provide this facility. Submit the duly filled application form along with the required documents i.e. the KYC documents like identity proof, address proof, and signature proof. And then deposit a prescribed amount towards the opening of the account.

Eligibility - who can open a PPF Account

•  Resident Indians, 18 years or older, can open a Public Provident Fund Account. There is no upper age limit for opening this account.
• Accounts can be opened for minors. Minors are those below the age of 18 years. However, the maximum limit of Rs.1.5 lakhs per year applies to deposits made in the minor and the major’s/guardian’s account, collectively. Grandparents cannot open an account in the names of their minor grandchildren.

2. What is the interest rate on PPF?

The current interest rate is 7.9% that is compounded annually. The Finance Ministry set the interest rate every year, which is paid on 31st March. The interest is calculated on the lowest balance between the close of the fifth day and last day or every month.

3. Essential features of PPF

• Tenure: The PPF has a minimum tenure of 15 years, which can be extended in blocks of 5 years as per your wish.

• Investment Limits: PPF allows a minimum investment of Rs 500 and a maximum of Rs 1.5 lakh for each financial year. Investments can be made in lump sum or in a maximum of 12 installments.

• Opening Balance: The account can be opened with just Rs 100. Annual investments above Rs 1.5 lakh will not earn interest and will not be eligible for tax saving.

• Deposit Frequency – Deposit into a PPF account has to be made at least once every year for 15 years.

• Mode of deposit – The deposit into a PPF account can be made either by way of cash, cheque, Demand Draft or online fund transfer.

• Nomination – A PPF account holder can designate a nominee for his account either at the time of opening the account or subsequently too

• Joint accounts – A PPF account can be held only in the name of one individual. Opening an account in joint names is not allowed

• Risk factor –  Since PPF is backed by the Indian government, it offers guaranteed, risk­-free returns as well as complete capital protection. The element of risk involved in holding a PPF account is minimal.

• Who can invest in PPF – Any Indian citizen can invest in PPF. One citizen can have only one PPF account unless the second account is in the name of a minor. NRIs and HUFs are not eligible to open a PPF account.

• Loan against PPF –  You can take a loan against your PPF account between the 3rd and 5th year. The loan amount can be a maximum of 25% of the 2nd year immediately preceding the loan application year. A second loan can be taken before the 6th year if the first loan is repaid fully.

4. PPF withdrawal

As a rule, one can close a PPF account only upon maturity i.e. after completion of 15 years. Upon completion of 15 years, the entire amount standing to the credit of an account holder in the PPF account along with the accrued interest can be withdrawn freely and the account can be closed.

However, if account holders are in need of funds, and wish to withdraw before 15 years, the scheme permits partial withdrawals from year 7 i.e. on completing 6 years.

An account holder can withdraw prematurely, up to a maximum of 50% of the amount that stood in the account at the end of 4th year preceding the year in which the amount is withdrawn or at the end of the preceding year, whichever is lower. Further, withdrawals can be made only once in a financial year.

5.Benefits of investing in PPF Scheme

Some of the key advantages of PPF accounts are stated below.

• Attractive long-term investments: With a deposit period of 15 years and a lock-in period of 7 years, these accounts serve long-term investment goals. With interest rates compounded annually, effective returns tend to be more attractive vis-a-vis bank FDs.
• Useful for retirement planning: Long-tenures, compounded, tax-free returns and capital protection make this an ideal option for building a retirement corpus.
• Tax-free returns: Tax-free interest and withdrawals and tax-deductible investments.
• Low-risk: Being government-backed, there is low risk of default.
• Easily accessible: PPF accounts can be opened at nationalised, public banks or post offices and select private banks, all of which have wide reach. Accounts can be opened online as well.
• No attachment: PPF funds can’t be attached under court order or laid claim to by creditors

6. What are the tax benefits of investing in PPF?

#ARCHANA