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Your Guide to the Public Provident Fund Scheme

By Dheeraj Kapoor | Bankbazaar.com – Tue 8 Dec, 2015 7:00 AM IST

Looking to invest for the long term? Here’s an investment option that gives you twice as much. How, you ask? The Public

Provident Fund Scheme is a safe, Government scheme that allows you to build retirement savings, and also gives you

great tax benefits. So, if you haven’t yet opened your PPF account, read on to find out why it’s a good idea.

What is a Public Provident Fund?

A Public Provident Fund is a long-term investment option introduced by the Government of India. The scheme is risk-free

and offers attractive interest rates. What’s more, the returns are fully exempted from tax.

More about the Public Provident Fund

The Public Provident Fund was established by the Government to provide retirement security to employed and self-

employed individuals in the country.

Tenure

The lock-in period for a Public Provident Fund account is 15 years. Your PPF account will mature after a period of 15 years

from the end of the year in which the account was opened.

Extending the Tenure

On the maturity of your PPF account, you can extend the tenure any number of times, for a period of 5 years each time.

If you choose to extend the tenure of your PPF account, this must be done within 12 months from the date of maturity.

Premature Closure

You cannot close a PPF account before the initial lock-in period of 15 years. In the event of your death, your

nominees/legal heirs can close the account after submitting the required documents.

How Many PPF Accounts is Too Many?

You are allowed to operate only one PPF account in your name.

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You can open a PPF account in the name of a minor child if you are the parent/guardian.

Make deposits at your convenience

You can open a PPF account with an initial deposit of as little as Rs. 100.

A minimum annual deposit of Rs. 500 is necessary to keep your PPF account active.

A maximum deposit of Rs. 1, 50,000 can be made in your PPF account in a financial year.

If you invest more than Rs. 1, 50,000 in a PPF account in a financial year, you may not be eligible for the interest on

the excess amount.

You can make deposits to your PPF account on a monthly basis or at your convenience. A maximum of 12 deposits can be made in a year.

Rate of Interest on your PPF Account

The rate of interest on a PPF account is fixed on an annual basis.

The current rate of interest (up to March 2015) is 8.70%.

Remember that interest on your PPF account is calculated on the minimum balance in your account between the 5 th and

the last day of every month.

The interest is compounded annually and credited on 31 March every year.

Eligibility to open a PPF Account

All Indian residents are eligible to open a PPF account.

Non-resident Indians are not eligible to open a PPF account. However, if an individual opened a PPF account when they

were resident in India, but became NRI during the tenure of the PPF account, such individuals will be eligible to continue

investing in the PPF account until the maturity.

The funds held in such accounts will not be transferred overseas, but will need to be used only in India.

Withdrawals from PPF Accounts

You can make one withdrawal per year starting from the seventh year. Your first withdrawal can be made after the

completion of 5 financial years from the end of the year in which you made your first deposit and opened your account.

How Much You Can Withdraw

You can withdraw an amount up to 50% of the balance in your account at the end of the fourth year.

What to do if your PPF account is deactivated

If you do not deposit the minimum amount of Rs. 500 in a financial year, your PPF account will be marked as a

deactivated account.

To re-activate your PPF account, you will need to pay a penalty of Rs. 50 for each year that you have not made any

deposits.

You will also need to make a minimum deposit of Rs. 500 for each year that you have missed.

Loans from PPF Accounts

You can take a loan from your PPF account up to a maximum limit of 25% of the balance in your PPF account at the end

of the second year.

Eligibility for Loan from PPF Account

You will be eligible to avail the loan facility from your PPF account between the third financial year to the sixth financial

year – up to the end of the fifth financial year.

Loan Repayment

The repayment of the loan from the PPF account has to be made in one lump sum or in two or more instalments within a

period of 36 months.

After the repayment of the principal amount, you will need to pay the interest amount within a maximum of two monthly


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instalments.

Interest Rates for Loans from PPF Accounts

The interest rate on loans from your PPF account is 2% on the principal amount.

Save Tax with a PPF Account

A PPF account is a good tax-saving investment option because deposits up to Rs. 1,50,000 p.a. in your PPF account are

deductible under Section 80C of the Income Tax Act.

The interest accrued on the full balance in your PPF account is entirely exempt from tax.

The balance in your PPF account cannot be attached to any claim in case you have debts or liabilities.

Where you can open a PPF Account

If you think you’re ready to open a PPF account, here are the places you can do that:

Branches of State Bank of India

Select Post Offices across India

Select branches of designated nationalised banks

Documents Required

You need the following documents to open a PPF account.

Account Opening Form – Form A

Copy of your PAN Card

Residence Proof – Electricity Bill/Passport

Passport-size photograph

So if you’re in it for the long term, and if you’re ready to block your funds for a long tenure, a PPF account is your answer.

If not, we have more investment options for you.

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Your Guide to the Public Provident Fund Scheme - Yahoo India Finance

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