top of page

Investment in Public Provident Fund (PPF) - Know the Rules and Benefits


PPF Investment

The PPF account or Public Provident Fund scheme is one of the most popular long-term saving-cum-investment products, mainly due to its combination of safety, returns and tax savings. The PPF was first offered to the public in 1968 by the Finance Ministry's National Savings Institute. When it comes to securing one's financial future, a well-thought-out investment strategy is paramount. The Public Provident Fund (PPF) stands out as a robust and time-tested option for individuals seeking long-term wealth growth.


Note : This article is about Public Provident Fund Investment (PPF) and not the Employee’s Provident Fund (EPF)


The Basics of PPF:


Interest Rate: As of 2023, PPF boasts a handsome 7.1% compounded interest rate which is tax free, considerably higher than most traditional savings or time deposit accounts. This means your money grows steadily over time, giving your future self a reason to smile.

Eligibility: Open to all Indian citizens and residents, including minors, PPF is inclusive and accessible. So, whether you're a seasoned investor or just starting your financial journey, PPF welcomes you with open arms (and high-interest rates!).

Investment Amount: You can contribute a minimum of ₹500 per year and a maximum of ₹1.5 lakhs per year to your PPF account. Think of it like a flexible ladder you can climb at your own pace.

Tenure: The PPF term is 15 years, but the good news is, you can extend it in blocks of 5 years, even after maturity! This means your money can keep growing for as long as you need it.

Special Protection to PPF Amount : PPF amount cannot be attached / recovered by any third party / Government / Court or any other person from you against any of your other liability even in case you get bankrupt than also PPF amount remains protected


Opening a PPF Account:

A PPF account can be opened with either a Post Office or with any nationalised bank like the State Bank of India or Punjab National Bank, etc. These days, even certain private banks like ICICI, HDFC and Axis Bank among others are authorized to provide this facility.


You need to submit the below-mentioned documents:

  • Duly filled account opening application form

  • KYC documents such as Aadhaar, Voters ID, driver's license, etc.

  • Residential address proof

  • Nominee declaration form

  • Passport size photograph


Tax Benefits

PPF is a tax haven! Contributions to your PPF account are eligible for deduction under section 80C of the Income Tax Act, reducing your taxable income and saving you precious tax rupees. Plus, the interest earned and the maturity amount are also tax-free, making it a double win for your wallet.


Withdrawal Rules:

Remember, PPF is a long-term commitment. Though partial withdrawals are allowed after 6 years (subject to certain conditions), the full maturity amount is available only after 15 years. This ensures your money stays invested and grows steadily, helping you achieve your long-term financial goals.


From seventh year, partial withdrawal upto 50% of the amount can be withdrawn for any purposes.


PPF accounts can be closed after five years in case of exceptional circumstances like requirement of funds for education, medical requirement , moving out of the country, etc.


However in case of premature closure of PPF account, interest in the account shall be allowed at a rate which shall be lower by one percent. than the rate at which interest has been credited in the account from time to time since the date of opening of the account, or the date of extension of the account, as the case may be.


Loan Against PPF Amount

  1. Loan against PPF can be taken if you funds are required before completing six years of investment. Loan against a PPF account between the third and the fifth year of opening the account is available.

  2. Loan can be taken for up to 25% of the balance in the PPF account two years before which the loan application is made.

  3. The repayment tenure of the loan is a maximum of 36 months

  4. Interest rate on Loan amount is 1% and no interest income will be paid on said amount .

  5. If the repayment of the loan is not done within 36 months, the loan against PPF interest rate would increase to 6% from 1%

Examples of PPF in Action:


Let's say you contribute the maximum ₹1.5 lakhs per year to your PPF account for 15 years. At the current interest rate of 7.1%, your maturity amount will be a whopping ₹40.33 lakhs! Not bad for a simple, risk free , secure investment, right?


Beyond PPF:

While PPF is a fantastic option, remember it's one piece of your financial puzzle. Consider diversifying your portfolio with other instruments like the National Pension Scheme (NPS) or equity mutual funds for a more comprehensive financial plan.


Conclusion:

The Public Provident Fund serves as a reliable and tax-efficient investment avenue for Indian residents. With its attractive interest rates, simplicity of eligibility, straightforward account opening process, and flexible withdrawal options, PPF continues to be a preferred choice for those seeking long-term financial stability and growth. As with any investment decision, individuals are encouraged to consult with financial advisors to ensure alignment with their overall financial goals.


 

Other Resources:


Comments


bottom of page