PUBLIC PROVIDENT FUND (PPF)
The Public Provident Fund, or PPF, is a government backed small savings scheme. It was introduce in India in the year 1968 with the objective to help individuals make small savings and provide returns on the savings. No tax is required to be paid on the returns which are generated from the interest rates.
A PPF account is ideal for investors with low risk appetite. The funds invested in the PPF account are not market-linked.
HOW TO OPEN A PPF ACCOUNT?
A PPF account can be opened with either a Post Office or with any nationalized banks. However few private banks such as ICICI, HDFC and Axis bank also have started to provide this facility. You will need to submit the duly filled application form along with the required documents. After submitting the form and documents, you can deposit the required amount to open a PPF account.
WHAT IS THE INTEREST RATE ON PPF ACCOUNT?
The current interest rate on PPF account is 7.1% annually.
FEATURES OF PPF ACCOUNT
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Investment Tenure
A PPF account has a lock-in period of 15 years on investment. However an individual can extend the duration of the account by a block of 5 years further. -
Investment Limits
An individual can invest a minimum of Rs 500 to a maximum of 1.5 Lakhs for each financial year. Amount can be deposited in lump sum or installment basis with a maximum of 12 installments per year. Deposit must be made at least once a year for 15 years. - Mode Of Deposit
Deposit can be made either by online fund transfer, Demand Draft, Cheque or Cash. - Number Of Accounts
An individual can open only one PPF account under his/her name. Joint accounts cannot be opened under this scheme. - Safety Factor
A PPF account is back by the Government of India and hence it offers risk-free guaranteed returns with capital protection. - Loan Against PPF Account
Loans can be availed against the PPF account. This can done between the 3rd and 5th year. The maximum amount of loan that can be taken is 25% of the total investments that have been made till the end of the second financial year.
PPF WITHDRAWAL
An individual can close the PPF account only upon completion of 15 years. However if an individual is in need of funds and wants to make withdrawal, he/she can do so from the beginning of 7th year. The account holder can withdraw 50% of the amount that is in the account at the end of the 4th year. It can either be at the end of the preceding year or the year before which the amount is withdrawn, whichever is lower. Account holders are allowed to make withdrawals only once a year.
PREMATURE CLOSUER OF PPF
After completion of 5 years it is possible for individual to opt for premature closure. However premature closure is allowed only in certain mentioned grounds.
TAX BENEFITS OF PPF
PPF vehicle falls under Exempt-Exempt-Exempt category. This means that the deposits made towards PPF account are tax exempt under section 80 C of the Income Tax Act. The total interest accrued on PPF investment is also exempt from any tax calculations. The amount which is accumulated in the PPF account is also tax exempted upon withdrawal.