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PPF Loan Features

Some of the key features of the PPF loan are as below:

  • All PPF account holders are eligible for a loan against PPF.
  • Account-holders can take this loan facility between the third and sixth financial year of opening a PPF account. If a PPF account was opened by during the financial year 2018-19, then a loan can be availed from 1 April 2020, which is the beginning of the financial year 2020-21. The loan can be taken till the end of the financial year 2022-2023.
  • Starting from the 7th financial year, the account can be partially withdrawn from.
  • The loan amount is capped at 25% of the balance at the end of the second financial year preceding the year in which the loan was applied for. If the account holder wishes to take a loan as soon as he/she is legally allowed to do so, his/her maximum loan capacity will be 25% of the balance as on March 2019.
  • Interest is charged at 2% more than the interest earned on the balance in the PPF account. In case of an update in the interest rate of PPF account, the interest rate on the loan will also see a proportional change. But once the interest rate is set for a loan, this rate will be applicable till the end of the tenure.
  • In case the loan against the PPF account is not paid off within 36 months, the applicable interest rate will be hiked to 6% more than the interest earned on the PPF balance (instead of the additional 2% interest rate charged normally).
  • If the principal is repaid within the loan tenure, but there is a portion of the interest amount that remains to be paid, then the outstanding amount will be deducted from the PPF account balance of the individual.
  • It is not possible to avail a second loan on the PPF account until the first one has been paid-off completely.
  • The principal amount needs to be paid off first, followed by the interest accumulated. The interest amount should also be repaid in two monthly instalments or lesser.

Interest on PPF Loan

PPF accounts allow the investors to take personal loans against the available balance in the account at a competitive interest rate. This is beneficial for individuals who want to apply for short-term loans without pledging any asset as collateral.

PPF account rules allow an individual to take a loan from the account from the third financial year till the end of the sixth financial year. Earlier, the interest charged on the loan taken from the PPF account was 2%. Now the interest rate chargeable on the loan has been revised to 1%.

Benefits of PPF Loan

A loan against PPF account can be advantageous in many ways. Here are some of the key benefits of the same:

  • Loan seekers will not be required to pledge any asset in the form of collateral when taking a loan against the PPF account.
  • The loan can be repaid within 36 months. This timeline is calculated from the first day of the month following the month in which the loan is sanctioned. For instance, if the loan was sanctioned on 25th January 2019, then the loan tenure of 36 months starts from the 1st of February, 2019.
  • Interest rates on PPF loan are far lower than those of traditional personal loans from banks.
  • The repayment of the principal amount of the loan can be done either in two or more instalments (on a monthly basis) or as a lump sum.

Documents Required to Open PPF Account

  • PPF account opening form (Form A) can be obtained from specified bank branches or can be downloaded online.
  • ID proof
  • Address proof
  • Photograph of the account holder
  • Nomination form

About PPF

Public Provident Fund (PPF) is a preferred investment option since it is backed by the Government of India and comes with an attractive interest rate and guaranteed returns. The interest earned on the PPF account is set for every quarter and is paid by the government. The applicable interest rate on PPF for the first quarter of the year, 2021-22 i.e. from 1st April 2021 to 30th June 2021has been fixed at 7.1% per annum

The government replaced the existing PPF Scheme 1968 with PPF Scheme 2019 highlighting 5 changes as compared to the scheme existing till now. These changes are:

  • Reduction in interest payable on loan from PPF account; 
  • Expanding the number of situations in which premature closure is allowed; 
  • Clarity on the continuance of PPF account after maturity; 
  • No restriction on the number of deposits; 
  • New forms for the new PPF scheme.

FAQs

1. Can I avail of Loan facility on my Public Provident Fund (PPF) investment?

Customers can avail of the loan facility between a third financial year to sixth financial year ie. from a third financial year up to end of the fifth financial year.

2. When can I take a loan against PPF account?

Account-holders are eligible to take a loan against PPF account between the third and sixth financial year of opening the account. After this, the individuals can only partially withdraw the amount from their PPF account.

3. What is the tenure of a loan against PPF?

The account holder must repay the loan amount within 36 months of borrowing, post which the rate of interest on the borrowed amount will rise from 2% to 6%.

4. What will be the interest charged on the loan?

The interest charged on the loan against the Public Provident Fund account is 2% more than the interest earned on the balance in the PPF account.

5. Can I withdraw my PPF before maturity?

The amount in PPF account can be withdrawn only at the time of maturity. However, earlier the PPF amount was locked for 15 years. But, now the balance of PPF account can be withdrawn on completion of 5-years.

End Note

Launched in 1968, the Public Provident Fund investment scheme allows individuals to make small savings while providing returns on those savings. The PPF scheme offers attractive returns and exempts investors from tax payments on the returns generated. The loan facility against PPF account is also attractive considering the competitive interest rate offered.

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