Public provident fund (PPF) is one of the best investment segments available in India. The government control the interest rate and guarantee the investor return.
Cutting long story short:
In this article, you will get all the basic information related to the public provident fund. How PPF boost the value of the investment.
We will start with.
What is Public Provident Fund?
According to Wikipedia – “The Public Provident Fund is a savings-cum-tax-saving instrument in India”.
In simple words.
The Public Provident Fund is the debt investment segments in which the investor get the fixed interest rate declared by the government (which is flexible) time to time.
PPF is one of the trust investment platforms for the small investor, with very low risk and save return.
Investment in PPF also allows the taxpayer for the tax saving u/s 80C.
Keeping PPF investment makes your portfolio financially healthy.
Salient features of Public Provident Fund
Public Provident Fund consists of very attractive features which definitely attract the reader to commence the investment right away.
- 1 What is Public Provident Fund?
- 2 Salient features of Public Provident Fund
- 2.1 PPF time period
- 2.2 Investment Limit In PPF Account
- 2.3 Interest on PPF
- 2.4 PPF after 15 years
- 2.5 Partial withdrawal of PPF (premature)
- 2.6 Public provident fund tax exemption limit
- 2.7 Loan against public provident fund (PPF)
- 2.8 What if the PPF account is discontinued?
- 2.9 Nomination facility in PPF account
- 2.10 Transfer of ppf account
- 2.11 Account holders in PPF
- 3 Reasons why investor opt for PPF
PPF time period
Some of the investors also say it lock-in period, in a simple sense your money is locked in for 16 years. The tenure of the public provident fund is 15 years.
If you invest in money today, it will be mature in 15 years. The maturity date is calculated at the end of the financial years, no matters in which month you have started your investment.
This scheme gives the investor to extend their account.
Investment Limit In PPF Account
Investment limit is restricted with 12 installments in each financial year, with the minimum amount of ₹ 500 and the maximum amount is ₹ 150000 (One lakhs fifty thousand only).
The opening of public provident fund (PPF) account allows the investor to begin with ₹ 100 only.
Interest on PPF
All you are waiting for:
How much interest investor earn from the public provident fund?
The interest rate declared by the government (which is variable) every quarter. Interest is calculated on the lowest balance between the close of the fifth day and the last day of every month.
Currently, the Public Provident Fund offers an interest rate of 7.6 % per annum.
The interest amount is credited in your amount on the end of the financial year.
In the above statement, you can see the interest credited at the end of the financial year.
PPF after 15 years
After maturity i.e. after 15 years the investor has three options:
- Close the account and withdraw the entire amount
- Extend the account without fresh amount deposits
- Extend the account with fresh amount deposits
In the first option, you can withdraw the entire amount along with interest and close the public provident account.
The second option, allow the investor to continue the amount without a fresh deposit. It is just like your fixed deposit in the bank if your FD is mature and the investor did not ask for withdrawal the bank continue the fixed deposit for another year.
Just like that if the investor after the lock-in period (15 years) not intimate to close or withdraw the amount, it would be extended to another 5 years.
During the extension period, the investor is allowed to withdrawn partial amount only once per annum.
Thirdly, extend the account with fresh amount deposits, under this option the investor need to intimate the bank regarding the continuation of PPF account in writing by submitting Form H within a year before maturity.
If the investor fails to do that the amount deposited as fresh contribution after maturity will do get the benefit of 80 C, and also no interest is credited on that amount.
Partial withdrawal of PPF (premature)
Although withdrawal from the public provident fund (PPF) does not come under normal practice. But there is an option of partial withdrawal in the financial emergency scenario with the subject to certain rules.
- Withdrawals from the public provident fund (PPF) account are permitted only after completion of 7th years from the day of commencement of the public provident fund (PPF) account.
- Only 50% of the closing balance at the end of the 4th year prior to the year when the money is being withdrawn or 50% of the closing balance of the previous year, whichever is lower is allowed.
- Only a single withdrawal transaction is allowed.
Public provident fund tax exemption limit
Under section 80C the investor can get the tax benefit up to ₹ 150000, although there are several platforms available like an insurance premium, Equity Linked Savings Scheme (ELSS), Payment of children tuition fee. and contribution of the amount under the Public provident fund.
The amount of deposit in PPF in financial year maximum up to ₹ 150000 is nontaxable u/s 80C.
Loan against public provident fund (PPF)
The facility of the loan from PPF is also available for the investor with certain rules:
The investor can apply for the loan from PPF amount from the third year till the sixth year.
The amount of loan avail maximum of up to 25% of the balance in your account at the end of the second year preceding to the year in which the loan is applied.
The rate of interest charged on the loan amount is (2% higher than the PPF interest rate) i.e. currently interest rate is 7.6, then the interest on the loan would be 7.6 + 2 = 9.6 %.
What if the PPF account is discontinued?
Public provident fund (PPF) is discontinued under the scenario of non-operation in a financial year, you must deposit at least ₹ 500 to keep your account active.
If your account is discontinued, you have to pay the penalty of ₹ 50 to get your account to regularize.
There is no effect on interest on the discontinued account.
Nomination facility in PPF account
The account holder will nominate a person for the particular percentage during opening and after the opening of Public provident fund (PPF) account.
Transfer of ppf account
The PPF account can transfer from one authorized bank or post office to another. Banks can avail the facility to deposit in PPF account online but in post office it is difficult, opt for the nearest post office is beneficial to et your PPF account active.
There is step by step processor available here to transfer of ppf account.
Account holders in PPF
An individual (salaried or self-employed) can apply for Public provident fund (PPF) account, Father or mother can also apply for the minor account for their child as guardian.
Only one PPF account is permitted for the individual.
There is no provision for joint account in PPF.
Here are some ppf account rules, every investor knew about.
Reasons why investor opt for PPF
Public provident fund (PPF) is a debt investment platform, the question is why? invest in PPF.
As we all aware of fund allocation strategy and fund diversification.
If we compare PPF investment with its nearest competitive fixed deposit, you can see the major difference of 1.5% of interest rate, which is huge in his emerging market.
PPF is also beneficial for:
- Retirement plans
- Child education loan
- Buying a car/home
- Tax benefit
PPF falls under EEE (Exempt, Exempt, Exempt) tax basket.
- The investment is eligible for tax exemption.
- The income is exempt from tax.
- The redemption proceeds are not added to income.