Public Provident Fund (PPF) is the most popular long term savings for the risk -averse investors in India. Being a government sponsored scheme, this offers highest security. It is a 15 year scheme with tax benefits. Now you can have PPF online and offline. Let us study the PPF scheme in detail.
PPF Account Opening
PPF account opening is possible in post office, State Bank and its subsidiaries, nationalized banks etc. Now some private sector banks are allowing you PPF account opening. ICICI is allowing you to transact in PPF online.
Public Provident Fund(PPF) Scheme- How It Works?
If your PPF was opened on 25th October 2007, it will not be maturing on 25th October 2022. The maturity of the PPF account is linked to financial year. In the example, your PPF was opened in the financial year 2007-08. So, it will be maturing 15 years from the end of the financial year 2007- 08. So it will mature for payment on 1st April. 2023.
Public Provident Fund(PPF) Scheme – How Much To Invest?
You can invest any amount between 500 and 1 Lakh in a year. You need not invest in a lump sum. You can pay in up to 12 installments in a year.
You can have only one PPF account in your name. You can have another account for your minor child where you are the guardian. If you miss to invest at least 500 in a year, you have to pay a penalty of 100/- for each year of default to regularize the account.
PPF Account – Interest Rates
The interest on PPF account is calculated on the lower of your accumulation between the 5th and the last day of the month. Invest before 5th of any month to earn more interest on PPF account. The PPF interest rate is decided by government every year and will be declared in advance. The current rate of interest on PPF account is 8.7%. The PPF interest rate will be linked to the 10 year government bond in the previous year.
What are the tax benefits in PPF?
The contribution in your PPF account will qualify for tax deduction under Section 80C along with other permissible investments. The entire interest added in your PPF account every year is also tax free. On maturity, you can withdraw the entire accumulation fully tax free. This is the main attraction of public provident fund scheme.
Can I extend the PPF after 15 years?
Yes, you can extend the PPF scheme after maturity. The extension is allowed in blocks of 5 years. Any number of extensions is possible in PPF. Suppose you are starting your PPF when you are aged 35, it will mature when you are aged 50. You can extend it twice to get the maturity at age 60.
Two types of extensions are possible in PPF account. You can extent your PPF account with or without further contribution. If you are opting for extension, without further contribution, you will continue to earn interest on your PPF accumulation. In the other option, you can continue to contribute into PPF account like in the first 15 years.
Can I take loan from PPF?
Yes, you are eligible for loan from PPF from the 3rd financial year to the 6th financial year.
If you have opened the PPF account in the financial year 2000-2001, you will be eligible to take loan from the financial year 2002 -2003. The amount of loan will be limited to 25% of the accumulation at the end of the 2nd immediately preceding year. So, if you are applying loan in the year 2005-06, you will get 25% of your account balance as on 31st March. 2004. You can repay the loan within 24 months. After repayment, you can still take loan within the 6th year. The interest will be 2% above the PPF interest rate.
PPF Withdrawal Rules
Though PPF is meant for long term savings, it offers liquidity from 7th year. You can go for 1 partial withdrawal from your PPF account every year.
PPF Withdrawal Calculator
If you have opened your PPF account in the financial year 2000 – 2001, you will be eligible for partial withdrawal from the financial year 2006-07. The withdrawal amount will be the lower of
- 50% of your balance at the end of the immediately preceding year.
- 50% of your balance at the end of the 4th immediately preceding year.
In our example, if you are applying for partial withdrawal in 2006-07, you will get the lower of
- 50% of your balance as on 31st March. 2006
- 50% of your balance as on 31st March. 2003.
PPF withdrawal rules during the extension period of PPF
If you are opting for extension of PPF without fresh contribution, you can withdraw any amount from the PPF accumulation. But only 1 withdrawal is permitted in a year.
If you are opting for extension of PPF with fresh contribution, you are eligible for partial withdrawal of 60% of your accumulation as on the date of extension during the next 5 year period Only 1 withdrawal is permitted in a year.
PPF account –Investment that cannot be attached by court
PPF account cannot be attached under any order or decree of court. If all your assets are liquidated to fulfill any of your liabilities, the entire amount in a PPF account remains with you. This makes PPF account extremely useful to business people.
PPF account – Ideal tool for rebalancing your portfolio
Since PPF account offers the flexibility of payment between 500 – 1 Lakh in a year, you can use it for rebalancing your portfolio. When you are young, you can have less contribution to PPF account and can invest more in equity mutual funds. As your age increases, you can reduce equity and increase debt component through PPF account.
Public Provident Fund online
Now, you have the facility of opening PPF online with ICICI Bank. State bank is also allowing you to make online contributions to PPF account.