Public Provident Fund (PPF)
Introduction
Public Provident Fund (PPF) is a type of national saving scheme whose returns are backed by the Government of India. Established by the Government of India, Public Provident Fund helps in financial planning and long-term wealth creation. Its increased popularity is a result of a combination of benefits like tax benefits under 80C, and attractive interest rates, making it a popular option for individuals who aim to build a long term portfolio with stability.
This post is dedicated to understanding the complexities of the Public Provident Fund, commonly known as PPF. Whether you’re a experienced investor or just starting on your investment journey, this article aims to equip you with a thorough understanding of PPF. From its historical evolution to key features, benefits, and eligibility criteria, we will you understand all concepts as you complete this article .
What is Public Provident Fund (PPF)?
The Public Provident Fund (PPF) is a government-backed savings-cum-investment scheme that offers tax-free returns on investment. It is a long-term investment option with a lock-in period of 15 years, but it can be extended in blocks of 5 years after maturity.
The PPF is one of the most popular investment schemes in India due to its attractive interest rates, tax benefits, and high safety. It is a good option for individuals of all income groups who are looking for a long-term investment to save for retirement, children’s education, or other financial goals.
Why is PPF popular among investors?
The popularity of the Public Provident Fund (PPF) among investors is due to its unique blend of safety, stability, and attractive returns. Here are the key reasons why PPF is a favorable choice:
Government Backing: PPF is backed by the government of India. This means that it’s a trusted and reliable way to save or invest money. The government takes special care to make sure your money is kept safe and grows over time.
Lower Risk: Many investors prefer PPF because it’s not like playing the stock market or other risky investments. Your money is less likely to go up and down like it might with other investments.
Guaranteed Returns: When you put your money in a PPF account, you know you’re going to get something extra from the government. It earns a specific interest rate as decided by the government.
Long-Term Growth: PPF encourages you to think long-term as it has a set lock in period of 15 years. It’s not for quick gains. You agree to leave your money untouched in the PPF account for at least 15 years. This helps you plan for the future and build a stable financial foundation.
Tax Benefits: The money you put into a PPF is eligible for tax deductions under 80 C up to a 1.5 Lakhs.
Flexibility in Investment Amount: You can start with as little as Rs. 500, and you can put in up to Rs. 1.5 lakh each year. This means PPF is accessible to a wide range of people, whether you’re just starting out or have been saving for a while.
No Market Dependency: Unlike stocks or other investments that can be affected by how the economy is doing, PPF doesn’t rely on the ups and downs of the market.
Features of a Public Provident Fund
Tax Benefits
- Investments in a PPF account qualify for tax deduction under Section 80C of the Income Tax Act, up to a maximum of Rs. 1.5 lakh per financial year.
- The interest earned on the investment and the maturity amount are also tax-free.
Guaranteed Returns
- PPF accounts provide assured returns, set by the government every quarter.
- The current interest rate on PPF accounts stands at 7.1% per annum, which surpasses the rates offered by most traditional savings products like bank deposits.
Flexible Investment
- PPF accounts offer flexibility in investment. You can start with a minimum of Rs. 500 and invest up to Rs. 1.5 lakh per financial year.
- You have the option to make investments in monthly installments, catering to investors across income groups, including those on a budget.
Long Term Investment
- PPF accounts have a lock-in period of 15 years. However, you have the option to extend the tenure in blocks of 5 years without the need for additional contributions.
- This makes PPF an excellent choice for long-term savings goals such as retirement planning.
Partial Withdrawals and Loan Facility
- After 5 years from the end of the financial year in which the account was opened, you can make partial withdrawals from your Public Provident Fund (PPF) account.
- While there is a limit on the amount of partial withdrawals per year, this feature provides accessibility to your savings when needed.
- Additionally, you can avail a loan against your PPF account after 3 years from the end of the financial year in which the account was opened. The loan amount can be up to 50% of the balance in your PPF account. This can serve as a financial safety net in emergencies or for major expenses.
Easy Account Opening and Portability
- PPF accounts can be opened at any post office or designated bank branch.
- Online account opening options are also available for convenience.
- Moreover, PPF accounts are portable, allowing you to transfer your account from one branch to another seamlessly.
Public Provident Fund interest rate
The interest on public provident fund schemes is determined by the Central Government of India. It aims to provide higher interest than regular accounts maintained by various commercial banks in the country.
Interest rates currently payable on such accounts stand at 7.1%, and are subject to quarterly updates at the discretion of the government.
How to open PPF account?
In order to open a Public Provident Fund account you need to understand the eligibility, account opening process (online or offline) and the list of documents required. Lets have a look at each one by one.
Eligibility Criteria
To open a Public Provident Fund (PPF) account, you must be eligible to meet the following criteria:
- Your age must be atleast 18 years or above.
- You must be a resident of India.
- You can open a PPF account in your own name or on behalf of a minor.
- You can also open a PPF account on behalf of a person with disabilities.
- Non-Resident Indians (NRIs) are not eligible to open a new PPF account. However, if an NRI had opened a PPF account while they were resident Indians, they can continue to operate the account until its mature but they cannot extend the investment period by 5 years.
- Hindu Undivided Families (HUFs) are not eligible to open a PPF account.
Documents Required
To open a PPF account, you will need the following documents handy:
- Proof of identity (PAN card, Aadhaar card, passport, or voter ID).
- Proof of address (Aadhaar card, passport, utility bills, or rental agreement).
- Passport-sized photographs (Required for offline method).
- Account opening form.
- Nominee details.
How to apply for a Public Provident Fund in post office or banks?
You can open a public provident fund in post office or banks by following these steps:
- Visit the nearest bank or post office branch.
- Get a Public Provident Fund (PPF) account opening form (Form A).
- Fill up the form and submit it with the required KYC documents and passport-sized photographs.
- Deposit the initial deposit amount in cash, Demand Draft (DD) or cheque at the time of account opening. The minimum deposit required to open a PPF account is Rs. 500.
- The branch officers will open the Public Provident Fund (PPF) account and give the PPF account number.
- If you are opening a PPF account on behalf of a minor, you will need to provide the minor’s birth certificate and the guardian’s KYC documents.
- If you are opening a PPF account on behalf of a person with disabilities, you will need to provide a disability certificate issued by a competent authority.
- You can open a PPF account at any bank or post office branch in India, regardless of where you live.
- Once you open a PPF account, you can make deposits online or offline.
How to apply for a Public Provident Fund (PPF) Account Online?
To open a PPF account online, you must be an existing customer of a bank that offers this facility. You will also need to have a valid Aadhaar number and be registered for net banking.
Here are the steps on how to open a PPF account online:
- Visit the website or App of your bank and log in to your net banking account.
- Look for the option to open a PPF account. This may be located under the “Investments“, “Accounts” or “Deposits” tab.
- Click on the “Open PPF Account” option and follow the instructions on the screen.
- You will need to enter your personal details, such as your name, address, and date of birth. You will also need to provide your Aadhaar number and PAN card number.
- You will also need to select a nominee for your PPF account. A nominee is the person who is care taker of your PPF account balance in case of your death.
- Once you have entered all the required information, click on the “Submit” button.
- Your bank will review your application and open your PPF account within a few days. Usually within a day.
- Once your PPF account is opened, you will receive a confirmation email from the bank. You will also be assigned a PPF account number and a passbook would be delivered to you registered address.
You can now start making deposits into your PPF account online. You can do this by transferring money from your bank account to your PPF account. You can also set up a autopay to automatically deposit a fixed amount each month.
Here are some of the benefits of opening a PPF account online:
- It is a convenient and hassle-free way to open a PPF account.
- You can open a PPF account online from anywhere, at any time.
- You do not need to visit a bank or post office branch.
- The process is quick and easy.
Principal Amount & Investments
Minimum and maximum investment limits
The minimum investment required to open a Public Provident Fund (PPF) account is ₹. 500 and the maximum investment amount is ₹. 1.5 lakh per financial year. You can make deposits in cash, cheque, or online.
Lump sum investment in PPF
A lump sum investment is a one-time investment of the entire amount. This is the best way to maximize your returns as you start earning interest on the entire investment amount from the date of deposit. Additionally, you can maximize your tax savings by investing the entire amount at once. If you decide to opt for lump sum investments then its ad
Installment investment
An installment investment is a way to spread out your investment over a period of time. This is a good option if you do not have a large sum of money to invest at once.
If you choose to invest in your PPF account in installments, you should make sure to make at least one deposit of at least ₹ 500 in a financial year to keep your account active. If you do not make any deposits in a financial year, your account will become inoperative and you will have to pay a penalty to reactivate it.
Penalties on PPF Account
Penalty for not making the minimum annual deposit
- If you do not make at least one deposit into your PPF account in a financial year, your account will become inactive.
- To reactivate your account, you will need to pay a penalty of Rs. 50 for each year that your account was inactive.
Penalty for premature withdrawal
- If you withdraw money from your PPF account before 5 years have elapsed, you will have to pay a penalty.
- The penalty is calculated as follows:
- For withdrawals made before 3 years: 25% of the interest accrued on the amount withdrawn
- For withdrawals made between 3 and 5 years: 1% of the amount withdrawn
Taxation of premature withdrawal
- In addition to the penalties mentioned above, you may also have to pay tax on the interest earned on your PPF account if you make a premature withdrawal.
PPF Withdrawal
To withdraw money from your PPF account, you can either visit a bank or post office branch or submit a withdrawal request online.
Rules for PPF withdrawals:
- You can make partial withdrawals from your PPF account after 5 years.
- The maximum amount you can withdraw in a year is 50% of the balance in your PPF account at the end of the previous financial year.
- You can make only one partial withdrawal in a year.
- You can close your PPF account after 5 years.
- If you close your PPF account before 5 years, you will have to pay a penalty.
- If you close your PPF account after 5 years, you will receive the entire balance in your account, including interest
- You can also make a premature withdrawal from your PPF account in certain cases, such as for medical emergencies or for higher education.
- To make a premature withdrawal, you will need to submit a written request to the bank or post office where you opened your PPF account. You will also need to provide supporting documentation, such as a medical certificate or a letter from your educational institution.
Offline withdrawal process:
- Visit the bank or post office branch where you opened your PPF account.
- Fill up a PPF withdrawal form (Form C). The form is available for download on the bank’s or post office’s website.
- Submit the form and your passbook to the bank or post office official.
- Your withdrawal request will be processed within a few days.
- You will receive the withdrawal amount in your bank account, demand draft or cheque.
Online withdrawal process:
- Log in to your bank’s net banking account.
- Select the “PPF Withdrawal” option.
- Enter the amount you want to withdraw and confirm the transaction.
- The withdrawal amount will be transferred to your bank account within a few days.
Types of Forms in PPF
There are eight different types of forms used for PPF accounts. You can download these forms from the website of your bank or from the website of the Ministry of Finance or from the branch where you opened your PPF account.
Here is a brief description of each form:
Form A: It is used to open a new PPF account. You will need to fill in your personal details, such as your name, address, date of birth, PAN card number and Aadhaar card number.
Form B: This form is used to make deposits to your PPF account. You can make deposits in cash, cheque, or online. If you are making a deposit in cash, you will need to visit a bank or post office branch. If you are making a deposit by online, you can do so through your bank’s net banking portal or mobile app.
Form C: Form C is used to make partial withdrawals from your PPF account. This feature can be availed after 5 years. The maximum amount you can withdraw in a year is 50% of the balance in your PPF account at the end of the previous financial year. You can only make one partial withdrawal in a year.
Form D: Form D is used to apply for a loan against your PPF account. You can avail a loan of up to 25% of your PPF account balance after 3 years of account opening.
Form E: Form E is used to nominate a beneficiary for your PPF account. A nominee is the person who will receive the proceeds of your PPF account in case of your death. You can nominate one or more beneficiaries for your PPF account and allocate a fixed percentage at the time of nomination.
Form F: Form F is used to change the nominee for your PPF account. You can change the nominee for your PPF account at any time.
Form G: Form G is used to claim the proceeds of a PPF account after the account holder’s death. The nominee or the legal heir of the account holder will need to submit Form G to claim the proceeds of the account.
Form H: Form H is used to extend the maturity of your PPF account. You can extend the maturity of your PPF account in blocks of 5 years.
Tips for PPF Investing
- Invest before the 5th of every month. PPF interest is calculated on the lowest balance between the 5th and last day of every month. So, if you deposit your money before the 5th, you’ll earn interest on it for the entire month.
- Invest the maximum amount you can afford, up to ₹1.5 lakh per year. This will help you build a larger corpus over time.
- Invest a lump sum at the beginning of the financial year. This will give your money the most time to grow through compounding.
- Extend your PPF account after maturity for another 5 years without investing a penny. This will allow your money to continue growing at the current interest rate. You will see your money almost double in the next 5 years.
- Choose a bank that offers online PPF transfers. This will make it easier for you to invest your money regularly.
- Set up autopay so that you automatically invest a certain amount of money in your PPF account every month. This will help you stay disciplined with your investments.
- Keep track of your PPF contributions and account balance regularly. This will help you ensure that you stay invested.
Conclusion
In Conclusion, the Public Provident Fund (PPF) is a secure and beneficial investment scheme for individuals in India that is backed by the government of India. It offers guaranteed returns, tax advantages, and flexibility in contributions. With a minimum investment of just Rs. 500, which is affordable.
The option to extend the account by 5 years beyond 15 years and the ability to make partial withdrawals provide added flexibility. However, it’s important to make regular contributions and take a long-term approach to make the most of PPF.
FAQ's
Public Provident Fund (PPF) is a government-backed savings-cum-investment scheme in India that offers tax-free returns on investment. It has a lock-in period of 15 years.
Public Provident Fund is backed by the government and offers guaranteed returns, making it a low-risk option compared to investments like stocks or mutual funds which are subject to market fluctuations.
The benefits of Public Provident Fund include government backing, lower risk, guaranteed returns, long-term growth, tax benefits, flexibility in investment, and independence from market fluctuations.
Any Indian resident aged 18 years or above can open a Public Provident Fund account. Minors and persons with disabilities are also eligible.
The minimum investment is Rs. 500 per year, and the maximum is Rs. 1.5 lakh per financial year.
The lock-in period for a Public Provident Fund account is 15 years. However, it can be extended in blocks of 5 years after maturity.
Yes, you can extend your Public Provident Fund account in blocks of 5 years without the need for additional contributions.
The Current PPF interest rate 2022-23 is 7.1%.
The interest rates on PPF accounts are subject to quarterly updates at the discretion of the government.
Yes, you can make partial withdrawals from your PPF account after 5 years from the end of the financial year in which the account was opened.
For withdrawals made before 3 years, a penalty of 25% of the interest accrued on the amount withdrawn applies. For withdrawals between 3 and 5 years, a penalty of 1% of the amount withdrawn is charged.
Visit the nearest bank or post office branch, fill out the PPF account opening form (Form A), submit the required KYC documents, and make the initial deposit.
Yes, if you’re an existing customer of a bank that offers online PPF account opening, you can do so by logging into your net banking account and following the instructions.
You’ll need proof of identity (PAN card, Aadhaar card, passport, or voter ID), proof of address, passport-sized photographs (for offline method), account opening form, and nominee details.
No, NRIs are not eligible to open a new PPF account. However, if they opened one while they were resident Indians, they can continue to operate the account until maturity.
Yes, you can open a Public Provident Fund account on behalf of a minor. You’ll need to provide the minor’s birth certificate and the guardian’s KYC documents.
If you don’t make any deposits in your Public Provident Fund account for a year, your account will become inactive. To reactivate it, you’ll need to pay a penalty of Rs. 50 for each inactive year.
You can use Form E to nominate a beneficiary for your Public Provident Fund account. A nominee is the person who will receive the proceeds of your PPF account in case of your demise.
Yes, you can avail a loan against your Public Provident Fund account after 3 years from the end of the financial year in which the account was opened. The loan amount can be up to 50% of the balance in your PPF account.
There are eight different types of forms used for Public Provident Fund accounts. They are used for purposes like account opening, making deposits, partial withdrawals, nominations, and more.
You can track the performance and status of your Public Provident Fund account by regularly reviewing your account statements provided by the bank or post office where you opened the account. You can also use online banking facilities if available.
