PPF is ‘Public Provident Fund’. PPF is backed by the Ministry of Finance in India and is established under the Public Provident Fund Act of 1968. The scheme was introduced to encourage savings and investments among the masses. It is one of the most commonly used investment instruments in India. Generally, it is one of the first tax saving investments which people make, after getting their first job. It is a long term investment tool for earning stable returns while protecting your invested amount. It is meant for people who have a very low risk appetite. Amounts invested in PPF earn guaranteed, stable returns. These investments are not linked to equity markets.
Features of PPF
- Minimum deposit is Rs 500 and maximum deposit is Rs 1,50,000 in a financial year.
- The lock-in period for the invested amount is 15 years. Funds cannot be completely withdrawn before end of 15 years.
- The investor can extend the tenure by 5 years after the completion of the 15 year lock-in period.
- Loan against PPF balance can be availed from 3rd financial year to 6th financial year.
- Withdrawal is allowed every year from the 7th financial year. However, entire amount cannot be withdrawn.
- The invested amount can be retained indefinitely without further deposit after maturity (i.e. after 15 years) at the prevailing interest rate.
- Offers tax benefit upto Rs 1,50,000 under sec 80C of the Income Tax Act.
- The interest earned on the invested amount in PPF, is exempt from tax under section 10 of the Income Tax Act.
- The amount in the PPF account cannot be attached to any order or decree of Court of Law.
- Nomination facility is available for PPF account holders.
Who can open PPF account?
Indian citizens who are residing in India can open PPF account in their name. Minors can also have a PPF account in their own name, provided it is operated by their parents.
Non-resident Indians are not permitted to open PPF account. However any existing account in their name remains active till completion of the 15 year lock-in period. Extension of 5 years after the lock-in is not allowed.
PPF accounts cannot be opened jointly. These have to be opened in individual investor name. Also an individual can have only one PPF account in their name. Opening multiple PPF accounts is not allowed.
What is the interest rate of PPF account and how does it work?
The interest rate applicable for PPF account investments are revised quarterly at the discretion of the government. The PPF investment works on the power of compounding. Over a period of time, the invested amount along with the interest earned on it, becomes huge and the returns also increase substantially.
How to open PPF account?
A PPF account can be opened online as well as offline. We would recommend opening an online PPF account simply because of the convenience it brings to the investor. All the leading banks in the country allow online opening of a PPF account. Online PPF account can be opened by visiting the banking portal of the selected bank.
The following documents are required to open a PPF account online –
- KYC documents like Aadhaar
- PAN
- Residential address proof
- Form for nominee declaration
- Passport sized photo
How to withdraw PPF money?
You need to complete the application in (Form C) and submit it to the branch where your PPF account is located. Form C contains 3 sections. In section 1, you need to mention the PPF account number, the amount you wish to withdraw and the number of years passed since opening the account. Section 2 is for office use. In section 3, mention the bank details where the funds need to be transferred. If you need a cheque or demand draft, mention the bank details in whose favour the cheque or demand draft is to be issued. Also include the copy of the PPF passbook with the application.
Should you invest in PPF?
PPF is a plain savings and investment scheme which works on compounding. Today’s youth who have just landed their first job, should look to invest their tax savings money in NPS or equity linked savings scheme (ELSS) before exploring PPF. The simple reason being, these products also help to save tax and provide better returns at the same time although with a certain level of risk. In case of ELSS the lock-in period is only 3 years. Alternatively, you could split your tax savings between all the three products, so you could diversify your investments and also not lose out on the returns.
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