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Wed, 9 Dec, 2015 6:51PM - Indian Markets are closed
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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