Benefit of investing in Public Provident Fund (PPF)
- Long-Term Commitment: PPF has a fixed term of 15 years (can be extended for 5 more years), encouraging individuals to adopt a disciplined and patient approach to savings.
- Government Backing: Administered by the Ministry of Finance, PPF is backed by the Government of India, ensuring the safety and security of the invested capital.
- Tax Advantages: Enjoys an Exempt-Exempt-Exempt (EEE) tax status, meaning all contributions, interest earned, and withdrawals are all exempted from income tax.
- Flexible Contribution Limits: Allows contributions ranging from a minimum of Rs.500 to a maximum limit of Rs 1.5 lakh per annum.
- Interest Rates: The interest rate on PPF accounts is decided by the government on a quarterly basis, providing predictability in returns. The current PPF interest rate is 7.1% (Q3 of FY 2023-24).
- Compounding Benefits: PPF follows a compound interest model, where the interest earned is added to the principal amount, contributing to exponential growth over the time.
- Safety and Security: As it is a government-backed scheme, PPF offers a high level of safety and security, minimizing the risk associated with market fluctuations.
- Withdrawal Restrictions: While the minimum investment period is 15 years, partial withdrawals are allowed from the 7th year onwards, providing liquidity in times of need.
- Loan Facility: PPF account holders can avail loans against their PPF balances, maximum loan amount permissible is 25% of the total available amount.
- Transferability: PPF accounts are transferable across authorized banks and post offices, providing convenience for individuals who want to change their bank accounts.
- Nomination Facility: PPF allows account holders to nominate beneficiaries, ensuring a smooth transfer of funds in the event of the account holder's demise.
Eligibility Criteria for opening a PPF Account
- Residential status: Only Indian residents are eligible to open a PPF account.
- Age Limit: PPF accounts can be opened by individuals aged 18 years or above. Parents can also open accounts for minors, with the condition that only one account is allowed per minor.
- Number of accounts: An individual can open only one PPF account in their name. Opening multiple accounts is not allowed, except for the case of a guardian opening an account for a minor.
- HUFs and NRIs: Hindu Undivided Families (HUFs) and Non-Resident Indians (NRIs) are not eligible to open a new PPF account. However, if an individual, who is a resident, opens an account and subsequently becomes an NRI, they are allowed to continue investing in the existing account until maturity.
- Joint account: PPF accounts cannot be opened jointly, they are intended for individual investors only.
- Guardianship for minors: Parents or legal guardians can open PPF accounts on behalf of minors. However, once the minor reaches the age of 18, they need to take control of the account.
Additional Read: All you need to know about Employee Provident Fund
Process of Opening a PPF Account
- Choose a financial institution: PPF accounts can only be opened at specific banks and post office, and it is necessary to have a savings account with the respective banks.
- Collect the PPF account opening form: Request the PPF account opening form from the bank or post office. This form is also available online on the official websites of certain banks.
- Fill in the application form: Complete the PPF account opening form with accurate and up-to-date information. Ensure that all mandatory fields are filled correctly.
- Provide necessary documents: Submit the required documents along with the filled application form. Typically, the documents include:
- Proof of identity (Aadhar card, Passport, Voter ID, etc.)
- Proof of address (Utility bills, Aadhar card, Passport, etc.)
- Passport-size photographs
- PAN card
- Deposit the initial amount: Make the initial deposit into the PPF account. The minimum deposit amount is Rs. 500 and the maximum amount is Rs. 1.5 lakh per annum.
- Set standing instructions (optional): If you wish to contribute regularly, you can set standing instructions for automatic transfers from your savings account to the PPF account monthly or yearly.
- Nomination (optional): While it is not mandatory, it is advisable to nominate a beneficiary for your PPF account. This can be done at the time of account opening or later through a separate nomination form.
Tenure and extension
- 15-year lock-in period: The maturity period of a PPF account is 15 years from the end of the financial year in which the account was opened. During this period, you cannot withdraw the entire balance from your PPF account. However, partial withdrawals are allowed after the completion of the sixth financial year from the date of opening the account.
- Options for extending the PPF account beyond 15 years: After the maturity of the PPF account, you can either withdraw the entire balance and close the account or extend it for 5 years with or without making further contributions. To make fresh contributions after maturity of the previous PPF investment, you must inform your bank about your choice of extending your PPF investment with fresh contributions by submitting Form 4 (earlier known as Form H). It must be noted that submission of this form is mandatory, else your account will be treated as irregular and no interest will be paid on fresh contributions. The minimum annual contribution required for a fresh contribution is Rs. 500.
- Impact of extension on interest rates: The interest rate on PPF accounts is decided by the government on a quarterly basis. The interest rate on extended PPF accounts would be the same as that of regular PPF accounts.
Additional Read: PF Balance Check With And Without UAN Number
Tax implications of PPF
Exempt-exempt-exempt (EEE) tax status of PPF. The interest earned and the maturity amount on PPF investments are tax-free under Section 80C of the Income Tax Act, 1961. Additionally, the interest earned on PPF investments is also tax-free. Withdrawals from PPF accounts are also tax-free.
Difference between Bajaj Finance Digital Fixed Deposit and PPF
Particulars
|
Bajaj Finance Digital Fixed Deposit
|
PPF
|
Interest rate
|
Up to 8.85% p.a.
|
7.1 % p.a.
|
Minimum investment
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Rs. 15,000
|
Rs. 500
|
Maximum investment
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Rs. 5 crore
|
Rs. 1.5 lakh per annum
|
Tenure
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42 months
|
15 years
|
Risk profile
|
Offer guaranteed returns
|
Offer guaranteed returns
|
PPF amount withdrawal
- Only one withdrawal is allowed per financial year.
- You can withdraw from your PPF account after completing 5 years excluding the year of account opening, starting from the 7th year.
- The withdrawal limit is 50% of the total balance or 50% of the amount at the end of the fourth year before applying, whichever is less.
How to transfer a PPF account
Step 1: Collect your transfer application form from bank or post office where you have opened your PPF account.
Step 2: Fill out the transfer application form, mentioning the full address of the branch where you want to transfer the account.
Step 3: The current branch will initiate the transfer process upon receiving your application.
Step 4: Your current branch will send necessary documents to the new branch, including the nomination form, PPF passbook, certified copy of the account, signature specimen, original account opening form, and a cheque for the outstanding balance.
Step 5: The new branch will confirm the receipt of your documents.
Step 6: Submit a new PPF account opening form and other required documents at the new branch.
Step 7: Complete the KYC process at the new branch.
Step 8: The entire transfer process usually takes around one month.
How to activate an inactive PPF account?
To activate a dormant PPF account, follow these steps outlined below:
Step 1: Draft a written letter to the bank or post office branch, formally requesting to reactivate your PPF account.
Step 2: Make a payment of a minimum of Rs. 500 for each inactive year, coupled with a penalty of Rs. 50 for each in active year.
Step 3: The bank or post office will then process your request.
Public Provident Fund (PPF) Limitations
- Lock-in period: PPF comes with a fixed 15-year lock-in period, meaning your money is tied up and cannot be withdrawn before that time.
- Annual contribution cap: You can only contribute up to Rs. 1.5 lakh annually to your PPF account. This limitation restricts the amount you can invest.
- Partial withdrawal restrictions: While you can make partial withdrawals, they are only allowed after completing 6 years. This limits your ability to access funds when needed.
- Market-linked returns: PPF provides fixed returns, which may be lower compared to investments linked to the market, limiting potential earnings.
Conclusion
In conclusion, the Public Provident Fund (PPF) emerges as a robust financial investment, offering a secure and tax-efficient avenue for long-term savings. Through this comprehensive guide, we've explored the various sides of PPF from its definition and features to the eligibility criteria, account opening process, and the benefits it provides.
Opening a PPF account is easy, and the option to adjust contributions according to financial capacity adds flexibility. With compounding interest, assured returns, and a safety net, PPF stands out among the rest.
Remember, the power of PPF lies not just in its numbers but in the financial peace of mind it provides.
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