Public Provident Fund (PPF)

Public Provident Fund (PPF) is a widely favored long-term savings scheme in India, providing tax advantages and competitive interest rates.
Public Provident Fund (PPF)
4 mins
14-September-2024

The Public Provident Fund (PPF) is a government-backed savings scheme recognised for its attractiveness to investors. This long-term investment option offers a combination of security, competitive interest rates, and tax benefits, making it a valuable tool for individuals seeking to build a secure financial future.

Pro tip

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What is Public Provident Fund (PPF)?

The Public Provident Fund (PPF) is a savings and investment scheme introduced by National Savings Institute of the Ministry of Finance to encourage small savings & investment among citizens. Established under the Public Provident Fund Act of 1968The PPF scheme is designed to provide individuals with a secure avenue for building a financial nest over an extended period.

How important is PPF?

The Public Provident Fund (PPF) is an ideal choice for risk-averse investors seeking a stable investment option. While returns are market-linked, they offer predictable growth, making PPF a safe addition to your portfolio. Another key advantage is the tax benefits associated with PPF investments.

Keep in mind that to earn interest, PPF deposits must be made by the 5th of each month. Interest calculation is based on the lowest balance between the 5th and the end of the month.

Features of a PPF Account

Let us explore some key features of the Public Provident Fund scheme:

Feature

Description

Eligibility

Open to all individuals, including salaried and self-employed.

Minimum Deposit

Minimum deposit required to open a PPF account is Rs. 500.

Maximum Deposit

Maximum annual deposit limit is Rs. 1.5 lakh.

Interest Rate

7.1 % as of September 2024

Tenure

Initial lock-in period of 15 years, extendable in blocks of 5 years.

Withdrawals

Partial withdrawals allowed from the 7th year onwards, subject to specific conditions and limits.

Loan Against PPF

Loan facility available from the 3rd to 6th financial year.

Tax Benefits

Up to Rs. 1.5 lack under Section 80 C.

Nomination Facility

Nomination facility available for account holders.

Transferability

PPF account can be transferred from one authorized bank or post office to another.

Online Accessibility

Some financial institutions provide online access to view PPF account details and make transactions.

Benefit of investing in Public Provident Fund (PPF)

Investing in Public Provident Fund offers several advantages, including:

1. 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.

2. 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.

3. Tax Advantages

Enjoys an Exempt-Exempt-Exempt (EEE) tax status, meaning all contributions, interest earned, and withdrawals are all exempted from income tax.

4. Flexible Contribution Limits

Allows contributions ranging from a minimum of Rs.500 to a maximum limit of Rs 1.5 lakh per annum.

5. 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 2024-25).

6. 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.

7. 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.

8. 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.

9.Loan Facility

PPF account holders can avail loans against their PPF balances, maximum loan amount permissible is 25% of the total available amount.

10. Transferability

PPF accounts are transferable across authorized banks and post offices, providing convenience for individuals who want to change their bank accounts.

11. 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

1. Residential status:

Only Indian residents are eligible to open a PPF account.

2. 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.

3. 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.

4. 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.

5. Joint account:

PPF accounts cannot be opened jointly, they are intended for individual investors only.

6. 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

Also read: NPS vs PPF

Explore Life Insurance policies

If you are looking to expand your investment portfolio, you may consider life insurance’s savings and investments policies that offer a great way to save, invest, and secure life coverage. They come with flexible premium payment options, guaranteed maturity benefits, or the potential for market-linked returns. Through Bajaj Finance Insurance Mall, you can access a variety of life insurance plans to compare and choose the most suitable policy online. This platform simplifies the process of securing your financial future with cost-effective premiums. Explore the available plans below.

Process of opening a PPF account

1. 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.

2. 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.

3. 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.

4. Provide necessary documents

Proof of identity (Aadhar card, Passport, Voter ID, etc.)

Proof of address (Utility bills, Aadhar card, Passport, etc.)

Passport-size photographs

PAN card

Submit the required documents along with the filled application form. Typically, the documents include:

5. 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.

6. 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.

7. 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

1. 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.

2. 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.

3. 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.

Also read: VPF vs PPF

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.

PPF amount withdrawal

  1. Only one withdrawal is allowed per financial year.
  2. You can withdraw from your PPF account after completing 5 years excluding the year of account opening, starting from the 7th year.
  3. 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

Let us understand the disadvantages of 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.

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

Rs. 15,000

Rs. 500

Maximum investment

Rs. 3 crore

Rs. 1.5 lakh per annum

Tenure

42 months

15 years

Risk profile

Offer guaranteed returns

Offer guaranteed returns

 

Conclusion

This article delves into the Public Provident Fund (PPF), a government-backed savings scheme in India. We explored its eligibility, features, and benefits, highlighting its role as a secure and tax-efficient option for long-term financial goals. The discussion covers account opening procedures, contribution flexibility, and the peace of mind provided by guaranteed returns and a safe investment environment. PPF emerges as a compelling choice for long-term savings due to its accessibility, attractive returns, and government backing.

Calculate your expected investment returns with the help of our investment calculators

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Frequently Asked Questions

How many PPF accounts can one have?

An individual can have only one PPF account in their name. Opening multiple accounts is not allowed.

How to convert a minor’s PPF account into a major?

When a minor turn 18, the PPF account can be converted into a major account. The account holder needs to visit the bank or post office to complete the conversion process.

What is the minimum lock-in period for a PPF investment?

The minimum lock-in period for a PPF investment is 15 years. However, partial withdrawals are permitted from the 7th year onwards.

How much can I withdraw from my PPF account?

The amount that can be withdrawn from a PPF account depends on factors such as the account's age. From the 7th year onwards, partial withdrawals are allowed within specified limits.

Can I close my account before 15 years?

While the minimum lock-in period is 15 years, premature closure is allowed in exceptional cases, such as in the event of the account holder's demise. However, specific conditions apply.

Who Cannot Invest in PPF?

Non-resident Indians (NRIs) cannot open new PPF accounts. However, existing NRIs with active PPF accounts can continue their contributions but not extend the tenure after maturity.

Which month is best to open a PPF account?

There's no specific "best" month. However, starting your PPF account in the beginning of the financial year (April) ensures you maximize interest earned as it's calculated on the lowest balance throughout the month. The difference might be minimal, but consistency matters for long-term investments.

Can both husband and wife invest in PPF?

Absolutely! Both husband and wife can open separate PPF accounts and enjoy the benefits individually. This allows them to potentially double their contributions and maximize their long-term savings for retirement or other financial goals.

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Disclaimer

As regards deposit taking activity of Bajaj Finance Ltd (BFL), the viewers may refer to the advertisement in the Indian Express (Mumbai Edition) and Loksatta (Pune Edition) furnished in the application form for soliciting public deposits or refer https://www.bajajfinserv.in/fixed-deposit-archives
The company is having a valid Certificate of Registration dated March 5, 1998 issued by the Reserve Bank of India under section 45 IA of the Reserve Bank of India Act, 1934. However, the RBI does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company.

For the FD calculator the actual returns may vary slightly if the Fixed Deposit tenure includes a leap year.