Public Provident Fund (PPF)
Public Provident Fund (PPF) is a long-term savings scheme offering stable returns and tax benefits. The investment plan has a 15-year lock-in period, with an extension option. The scheme allows partial withdrawals after five years and also offers loan facilities. PPF account holders can claim tax deductions.
Public Provident Fund (PPF) is one the very popular long-term savings schemes in India. Crores of people have opened PPF accounts with the authorised banks and Post Office to make sure their future is financially stable. The savings plan is considered to be stable and secure as it is controlled by the central government and assured fixed returns as it is not a market-linked scheme. The scheme is aimed for individuals with a low risk appetite. In a PPF scheme, the money is deposited every month and interest is compounded. With PPF investments, the depositors could diversify their financial and investment portfolios as it provides stable returns on investment annually.
The government rules state that a PPF account will have a lock-in period of 15 years on investment. The depositor is given an option to extend the tenure by 5 years with future deposits after the PPF lock in period is over. The account matures on completion of 15 complete financial years from the end of the year in which the account was opened.
Joint accounts cannot be opened in PPF scheme. The banks and Post Office allow individuals to open an account by cash/cheque. Notably, the date of realisation of cheque in government account is considered the date of opening of account. The Public Provident Fund nomination facility is available at the time of opening and also after opening of account. The PPF account holder is allowed to open another account in the name of minors but subject to the maximum investment limit by adding balance in all accounts.
For a PPF account, the minimum deposit is Rs 500/- and maximum deposit Rs 1,50,000/- in a financial year. The account holder can make investments on a lump sum or installment basis. However, an individual is eligible for only 12 yearly installment payments into a PPF account.
PPF withdrawal, loan facility
Withdrawal facility is allowed every year after 5 years excluding year of account opening. Depositors are allowed to make a partial withdrawal in case of emergencies. According to the rules, up to 50 per cent of the total balance can be withdrawn in one transaction each financial year succeeding in the 4th year.
PPF account holders can avail loan facility from 3rd financial year up to 6th financial year. The investor is eligible for a loan amount no more than 25 per cent of the second year immediately preceding the loan application year. If a depositor pays off the entire first loan amount, the individual can opt for a second loan before the sixth year.
The PPF interest rate is notified by the Ministry of Finance on a quarterly basis. Currently, the PPF account holders are eligible to get 7.1 per cent interest on the deposits. The interest is credited to the beneficiary account at the end of each financial year after calculating for the calendar month on the lowest balance in the account between the close of the fifth day and the end of the month. The deposit amount qualifies for deduction under Section 80-C of IT Act and the interest earned in the account is free from Income Tax under Section -10 of IT Act.