Public Provident Fund (PPF) Account Investment Guide

Public Provident Fund (PPF)

Public Provident Fund is a Government supported scheme where individual get tax free guaranteed returns. Public provident fund is open by an Individual only. It can not be opened by non-individuals.

• Public Provident Fund (PPF) Term is 15 years excluding the year in which account is opened.
• It was started in 1968 to encourage small savings and investments.
• It gives income tax benefits under section 80C.

PPF Account Rules

PPF Account rules are important to know before investing your money for the long term. review below rules of PPF accounts thoroughly.

• Any resident Indian citizen can open a PPF account.
• Any resident individual can open an additional (more than one) a/c on behalf of a minor for whom he or she is the guardian.
• You can not open a Joint Account.
• Any non-resident Indian(NRI) can not open a new account. However,  An account holder who becomes NRI may continue without Repatriation benefit to maturity.
• HUF also are not allowed to open an account after 13-may-2005 but continue the account if it is opened before, till maturity and no extension is allowed once the account gets matured.
• Minimum Amount: ₹500.00
• Maximum Amount: ₹1,50,000.00
• The amount should be in the multiples of 5 and it can be deposited lump sum or in instalments (Maximum 12 instalments)
• You can not deposit more than 1.5 lacs in a year.

PPF Interest Calculation

PPF interest calculation is different than other fixed-income financial products like Recurring deposit. Check your PPF passbook for interest calculation.

• Interest calculation of PPF is on the lowest balance between the close of the 5th day and the last day of every month.
• The interest is credited to the PPF account at the end of each Financial Year i.e. 31st March
• Current Interest rate is 7.10 % per annum (as on 1st December  2020).

PPF Extension Rules

PPF Extension rules will apply when you extend your account after maturity and you get the benefit of section 80C income tax deduction in the extension period.

• After the maturity of the account, it can be extended for a block of 5 years.
• No restriction about the number of such extensions.
• An account holder has to fill the form H before the expiry of one year from the date of maturity of its original or extended-term.

PPF Loan Facility

• The first loan can be given in the third year of opening the account but before the expiry of 6th year including the year in which the initial subscription was made.
• 25% of the balance in the PPF account including interest at end of 2nd year immediately preceding the year in which the loan is applied.
• The loan can be taken only once in a year.
• 2ndloan can be taken on full payment of the first loan.
• The principal amount has to be paid back before the expiry of 36 months from the 1st day of the month following the month in which loan is sanctioned.
• Repayment of Principal loan can be paid in one lump sum or in two or more monthly instalments.
• Interest on the loan revised to 1% p.a. (It was 2% per annum earlier)
• If the loan not paid within 36 months then the interest rate will increase to 6% p.a.

PPF Partial Withdrawal

• The first withdrawal can be made in the 7th year including the year in which account was opened.
• When the withdrawal facility starts, no loan is available.
• Only one withdrawal is allowed in a year.
• The maximum amount of withdrawal is –50% of the balance at the end of the 4th year preceding the withdrawal Year, or at the end of the preceding year, whichever is lower.

PPF Withdrawal after Extension

• One withdrawal in a year.
• The total of withdrawals during the 5 years block period shall not exceed 60% of the balance at the commencement of the said period.
• This limit shall apply on every extended block.

Where to Open PPF account

• Nationalized Banks.
• State Bank of India (SBI)
• Private Banks: ICICI, AXIS, HDFC.
• Head Post Office.
• Any selected Sub Post Office.
• Any other office authorized by Central Govt.
• You can also open PPF account Online.

Important Things to know about Public Provident Fund account

• In case of maturity of account of a minor, who is major at the time of maturity entire amount belongs to him/her.
• A guardian can withdraw from the minor’s account only for the needs of the child such as expenses for his education, medicines etc.
• The PPF interest gets credited of the contribution amount on the date of the deposit by cheque, not on clearance. this may not true with banks.
• The amount standing to the credit of the subscriber is free from attachment by a court in respect of any debt or liability incurred by the subscriber. However, it is subject to attachment under the orders of the Income Tax authorities.
• Premature closure of account is permitted after completion of 5 years for medical treatment of family members and for the higher education of PPF account holder. However, premature closure comes with an interest rate penalty of 1%.

What is Discontinued PPF Account?

• If you don’t deposit a minimum amount, it will be discontinued, you can not open a new account, take a loan or withdraw money.
• In order to make your account active, then you have to pay penalty Rs.50 charge per year of default plus minimum subscription i.e. Rs.500

What is Irregular PPF Account?

• If you invest more than the prescribed limit of 1.5 lacs in a year, your account will be treated as irregular account.
• The extra amount will not earn any interest.
• The extra amount will be returned to you.
• You will be allowed to get 80C tax exemption up to 1.5 lacs

What is Retained PPF Account?

• Once account matures, account holder neither applies for its extension nor closes it by withdrawing full money, the account is treated as ‘retained’.
• There is no option in writing to be required for ‘retaining’ the account.
• One withdrawal of any amount in a year is allowed.
• Balance amount will earn interest.
• You can not make fresh investment in retained account.

Other Public Provident Fund Account Facilities

• You have the power to transfer your account from Banks to Post office or Vice-versa.
• You can make payment through Cheque, Demand Draft (DD), Cash, Pay Order or Online.
• Nomination can be done in the name of one or more persons.
• If the account holder dies, the balance in the PPF account will continue to earn interest. It can be closed before maturity and the payment is made to the nominee.
• No fresh investment is allowed when the account holder dies.
• The nominee can be updated later also.
• When the balance is up to 1 lakh it can be paid to legal heirs by producing documentary evidence.
• If the balance is more than 1 lakh, a succession certificate is required.

Conclusion

Generally, people invest in PPF for financial goals and due to a decrease in interest rate. It is better to invest in other financial product. Check your investment portfolio and how are your financial assets allocation.

Nowadays we are investing in equity mutual funds for long term financial goals to earn higher growth than other financial products.

Consult with your financial advisor so that you can invest your savings towards your financial goals.