Public Provident Fund (PPF) is so far the popular investment instrument that is largely sought after by Indians. Risk-free returns, tax benefits, loan facilities and higher interest rates make it an attractive option for many to choose this investment vehicle. But does it score high over investments such as mutual funds, insurance and stocks? Can you withdraw the PPF before that maturity period? Let us look in detail about its features and benefits.
Who can invest in Public Provident Fund?
Public Provident Fund can be opened by all Indian residents. There is no age limit to open a PPF account. However, individuals who are below 18 years will need to have a guardian to operate the account. Once the person turns 18, the person can operate the account completely. Public Provident Fund is an ideal scheme for children who want to start investing at an early age. The returns can be used to manage expenses on higher education. The PPF account can be opened at post offices or through any bank that provides the scheme. The money can be deposited online using net banking or by visiting the nearby branch or post office.
Additional Reading: How PPF account helps in saving money?
How to withdraw your PPF amount?
PPF savings scheme comes with the maturity period of 15 years. The investor is not allowed to make encashment before the maturity period. However, a partial premature withdrawal is allowed at the start of the 7th year i.e. after completing 6th of the scheme. You can partially withdraw up to 50% of the total amount invested.
To make a withdrawal, you need to fill out a form, i.e. Form C which can be available at the post office or at the bank where you have maintained the PPF account. You can also download the form online. You may have to fill up the details of your PPF account such as the starting year of investment, amount to be withdrawn, number of years completed, etc. After filling up the form, you may submit it at the post office or your bank.
The bank or post office will verify the date of account opening and ascertain your eligibility. Once eligibility is established, the amount will be calculated and deposited into your bank account or you will be given a DD to get the money.
At the moment, you can deposit the PPF amount online, but there is no provision to withdraw your PPF amount online. You can fill up the form and proceed with the withdrawal process.
Features and Benefits of Public Provident Fund
Public Provident Fund Scheme was introduced in 1968 by National Savings Institute of the Ministry of Finance. Following are the features and benefits of the saving scheme:
Tenure: One must keep investing in a PPF account for up to 15 years. The maturity period is the same for all depositors. Those who wish to extend the tenure can do so by increasing it to 1 year or more blocks of 5 years each.
Interest Rate: The interest rate on PPF account is not fixed, and it is revised every financial quarter. In general, the interest rate may range from 7.5% to 8.9%. The difference in the rate is due to the situation of the market. If the market performs well, the beneficiaries will get more interest rate. Following is the history of interest rates of PPF account in India.
|Year||Interest Rate on PPF|
|April 1986 to January 2000||18.00%|
|January 2000 to February 2001||11.00%|
|March 2001 to February 2002||9.50%|
|March 2002 to February 2003||9.00%|
|March 2003 to November 2011||8.00%|
|December 2011 to March 2012||8.60%|
|April 2012 to March 2013||8.80%|
|April 2013 to March 2016||8.70%|
|April 2016 to March 2017||8.0% - 8.1%|
|April 2017 to March 2018||7.6% to 7.9%|
|April 2018 to March 2019||7.6% to 8.0%|
|April 2019 to June 2019||8.00%|
|June 2019 to September 2019||7.90%|
Investment Method: You can deposit the amount either online or visiting the nearby branch or post office. You can start the investment with the minimum of Rs. 500. You can invest up to Rs. 1.5 lakhs in a year. You are allowed to make 12 deposits in a year irrespective of the amount of investment. As the minimum investment amount is Rs. 500, you cannot deposit less than that. You must invest a minimum of Rs.500 each month. Failure to invest the minimum annual amount will require you to pay a penalty of Rs. 50 for one account.
If you want to make the most of PPF account, you can invest Rs. 1.5 lakhs each year continuously for up to 15 years. After 15 years, the total amount invested would be Rs. 22,50,000 and you would get a return of Rs. 43,98,645 at an interest rate of 8%. The profit on the investment is Rs. 21,48,645. This is the maximum returns you can get on a PPF account at 8% interest rate. However, the returns may vary if the rate of interest varies at the time of maturity. One person can open only one PPF account in their lifetime. The subscriber can transfer the PPF account to another bank or post office by submitting a transfer request form with all the required details.
Tax Benefits: Many people prefer this investment vehicle just because the interest earned on this account is tax-free. All the amount earned through interest is yours. Moreover, you can claim a tax deduction for up to Rs. 1.5 Lakhs under 80C of the Income Tax Act. This is another advantage of PPF account.
Loan Against PPF: Not many people who have a PPF account are aware of this feature. You can avail a loan against the amount invested on your PPF account. The loan can be availed through banks. The loan against PPF can be applied only from 3rd year and till the end of the 6th year of the tenure. No loan can be taken from 7th year as it qualifies for a partial withdrawal.
The loan amount is up to 25% of the PPF amount invested at the end of the 2nd year. The interest rate on the loan against PPF is 2% more than the existing PPF interest rate. For example, the PPF interest rate is at 7.6%, the loan interest would be 9.6% which is much lower than a personal or gold loans. The maximum tenure on the loan is up to 36 months.
Additional Reading: How to check PPF account balance
Having a PPF account is an important investment instrument in the financial portfolio that everyone must have in their lifetime. The invested amount can help meet any major financial goals in the future.