Last Updated on October 25, 2023 by BFSLTeam BFSLTeam
Table of Content
Introduction to PPF
The Public Provident Fund, commonly known as PPF, stands for an investment scheme celebrated for its investor-friendly features and associated advantages.
Understanding Public Provident Fund
PPF, or Public Provident Fund, is essentially a long-term investment scheme that appeals to those seeking secure and steady returns, with a primary focus on preserving the principal amount.
How Public Provident Fund Works
When an individual initiates a PPF scheme, a dedicated PPF account is created for them, where monthly deposits are made, and interest is compounded.
A PPF account is of great significance, particularly for risk-averse individuals. Being a government-mandated plan, it offers guaranteed returns to safeguard the financial well-being of the Indian population. Moreover, funds invested in PPF accounts are not influenced by market fluctuations.
Key Characteristics Of A Public Provident Fund Scheme
| Interest Rate of PPF | 7.1% per annum |
| Tax Benefit | Up to Rs.1.5 lakh under Section 80C |
| Risk Profile | Offers guaranteed, risk-free returns |
| Minimum Investment Amount | Rs.500 |
| Maximum Investment Amount | Rs 1.5 lakh per annum |
| Tenure | 15 years |
Features of A Public Provident Fund Account
- Investment Tenure
A PPF account has a 15-year lock-in period, but it can be extended for an additional 5 years.
- Principal Amount
You can invest between Rs. 500 and Rs. 1.5 Lakh annually, with options for lump sum or installment payments. A maximum of 12 yearly installments are allowed.
- Active Account Requirement
Ensure your PPF account remains active by making an annual investment.
- Loan Facility
Loans against your PPF investment are available from the 3rd to the 6th year of the account, with a maximum tenure of 36 months. You can borrow up to 25% of the total account balance.
- Eligibility
Indian citizens, including minors operated by parents, can open PPF accounts. Non-residential Indians can’t open new accounts, and they can’t extend existing ones for 5 years.
- Interest Rates
The Central Government of India sets PPF interest rates to be higher than those of commercial banks. Currently, it stands at 7.1%, subject to quarterly government updates.
Also Read: How to Withdraw PF Online
Opening a PPF Account
You can open a Public Provident Fund account through both offline and online methods, as long as you meet the eligibility criteria. To activate a Public Provident Fund account online, visit your chosen bank or post office’s website.
Documents Required
To open a public provident fund account, you’ll need to provide the following documents:
1. KYC documents for identity verification (Aadhaar, Voter ID, Driver’s License, etc.)
2. PAN card
3. Proof of residential address
4. Nominee declaration form
5. Passport-sized photograph
PPF Tax Benefits
Investments in a PPF account offer attractive tax benefits. The entire invested amount is eligible for tax exemption under section 80C of the Income Tax Act of 1961. However, the annual principal investment limit is Rs. 1.5 Lakh.
Furthermore, the interest earned on your Public Provident Fund investment is also tax-exempt. This means that the entire maturity amount, when withdrawn, is not subject to taxation, making the Public Provident Fund scheme a tax-efficient investment option for many in India.
Also Read: How to Merge PF Accounts
PPF Withdrawal Guidelines
Withdrawals from a Public Provident Fund account come with specific conditions and timeframes:
1. Mandatory 15-Year Lock-In: The principal amount in a Public Provident Fund account is subject to a 15-year lock-in period.
2. Partial Withdrawal: In certain emergency situations with specific end-uses, partial withdrawals are allowed. However, these withdrawals can only be made after the account has been active for 5 years. Each financial year after the 4th year, you can withdraw up to 50% of the total balance.
3. Long-Term Investment: Keep in mind that funds in a Public Provident Fund account cannot be liquidated before maturity. Public Provident Fund is an ideal choice for individuals seeking long-term, risk-free investments with stable returns, backed by the government.
