What is PPF?
PPF stands for Public Provident Fund. It is one of the safest investment options for your retirement. Every single penny saved in PPF goes to the Indian government which further offers a fixed rate of interest on your savings. The best part of this scheme is that it comes under EEE category. EEE means Exempt, Exempt and Exempt. It basically means that every investment made under EEE category will automatically get a deduction under section 80C on your income.
In addition to that, the earned interest on it along with it’s maturity proceeds will entirely be tax free, and the investor doesn’t need to pay a single penny on tax. This is why, PPF is considered as the most traditional, safest and risk-free investment in India. Most of the Indian companies offer PPF scheme to employees so that they can secure their future by consistent savings.
Those who don’t have any pension scheme must opt for PPF as it is the best saving plan for your retirement. The best part is that it offers tax benefits to employees working for unorganised sectors.
What are the Benefits of PPF(Public Provident Fund)?
PPF comes with numerous benefits that one should really know. If you don’t have a PPF scheme, then you must know the miraculous benefits of PPF in order to safeguard your future and retirement period.
1. Consistent and Handsome interest rate
You might be surprised to know that PPF has always been offering higher interest rate than any kind of investment. For an instance, it offers higher interest rate than the corresponding fixed deposit rates in the national and private banks. According to the reports by the National Savings Institute, PPF has always been around 7% to 8%, which is quite remarkable.
2. It comes with multiple safety benefits
PPF is synonymous with safety benefits. The best part of this scheme is that it is backed by the Government of India. Thus, one doesn’t need to worry a little before taking the plunge. Ever since the Government Savings Banks Act, 1873, the scheme has been governed successfully. The money which goes into the PPF is directly credited to the National Small Savings Fund (NSSF), which is again utilised and maintained by the Indian Government. On top of that, the Government also pays interest on that savings which is nothing short of an icing on the cake.
Moreover, what makes it even safer is that it is entirely in the hands of the Indian Government. However, whatever savings you make in public and private banks are only insured till 1 lakh by the Deposit Insurance and Credit Guarantee Corporation (DICGC).
3.Incredible tax benefits offered by the scheme
Any contribution that you make to the PPF scheme will give you tax benefits. In fact, the interest and maturity amount on the PPF is also made exempted from tax under the special model of taxation, EEE.
Another amazing benefit of PPF is that one can avail loan against PPF account right from the 3rd to 6th year of account opening. It means that if your account is running for at least 3 years or more, then you can avail the loan facility without any hassles. One can avail up to 25% of the balance for the maximum tenure of 36 months. The rate of interest will be 2% higher than the current interest rate on PPF account. So this is yet another amazing benefit that investor can get on PPF loan.
Every PPF comes with a lock-in period of 15 years. If you want to make any withdrawal then you have to wait at least for 7 years for partial withdrawals. However, it is recommended to check with the official website or with your banks. Some banks allow the partial withdrawal even after 5 years or 7 years. But, there are some restrictions on partial withdrawals.
First of all, only one partial withdrawal can be made per financial year.
Secondly, the withdrawal amount has to be lower than 50% of the account balance.
So, these are the two main limitations for partial withdrawals.
The best part is that PPF rates are declared every quarter, thus it is compounded annually as per the declared rates. Thus, you will be always on the safer side and get benefit out of it.
What are the PPF(Public Provident Fund) Account Features?
PPF is an incredible savings scheme for your retirement which safeguards your future. As it’s a long term investment, thus, it has many eye-catching features with interesting interest rate in the market. Let’s take a look at it’s amazing features that will make you go weak in the knees.
First of all, it can be opened in a bank account or post office. It’s just like any other savings account where you need to keep your money. However, it will give you assured interest unlike other investment plans.
Secondly, It has a maturity period of 15 years and same is the lock-in period. If you want to make any partial withdrawal then it can only be done after 7 years from the opening year of the account.
Thirdly, everyone has to make a deposit of minimum 500 INR in a year in order to keep it activated. It is the minimum requirement to keep your PPF going without deactivation.
Fourth point would be, there is a cap of 1.5 lakhs on the investment per year. One can’t make a deposit beyond 1.5 lakhs per year.
Fifth point would be, one can deposit for only 12 times per year. Every month you can make one deposit in order to meet the laid criteria of PPF scheme.
Sixth point would be, it is the only scheme where one gets better interest rate than any other investment plan including the Fixed Deposit in the banks.
Seventh point would be, one can save taxes with the help of the PPF scheme. The scheme is eligible for tax saving under section 80C
Eight point would be, one can’t open a join account under this PPF scheme.
Ninth point would be, you can open it on the name of minor account. Suppose, if you want to open it for your child, then you can open it easily by putting yourself as his/her guardian.
Tenth point would be, this scheme can’t be availed by NRIs. However, if he/she had an activated account before moving abroad, then he/she can keep enjoying it’s privileges till the maturity date.
How is PPF(Public Provident Fund) interest calculated?
As per the official PPF rules and guidelines, the interest is calculated on a monthly basis. However, the interest is credited in an account on a yearly basis, by the end of financial year on March 31st. whatever is the balance in your account, the interest is compounded on that annually. And the interest is always calculated on the lower deposits in your account from 5th to the end of the month.
Comparing PPF vs NSC
Before knowing the difference, or discussing about the benefits of both the schemes, it’s better to know about NSC. It stands for National Savings Certificate, and also considered as the save investment. One can invest in the NSC at any nearest post office. The minimum amount to be deposited is 100 INR. Thus, it’s quite similar to the PPF scheme.
However, there are some major differences that one must know.
PPF has a tenure of 15 years, whereas NSC has a tenure of 5 years. If you want a short term investment then you can go with NSC, else PPF is the right choice for long term benefits.
PPF is the risk free investment which pays benefits for long time. For retirement purposes, PPF is the best investment plan. You can invest money for 15 years without diverting your funds anywhere else. However, if you are a short term investor, then you can go with NSC. It will give you benefits right after 5 years.
On the tax front, PPF is a clear winner. It gives better tax benefits than NSC. Currently, the govt is cutting down interest rates on small saving investments. And the interest you are going to earn on the NSC is taxed, whereas it’s tax free in PPF.
Comparing PPF vs Tax Saving FD
Currently, it is quite evident that interest rate on tax saver FD is quite lower than that of PPF. The major reasons is that PPF is a long term investment plan, whereas FD is a short term investment plan. The government is not offering good interest and tax benefits on short term investments. This is the major reason why one should go with PPF if he is looking for good benefits. Currently, most of the private and public sector banks are offering 6.80% interest on FDs which is quite lower than PPF.
Comparing PPF vs EPF
First of all, both schemes are backed by the Indian government, thus, one doesn’t need to worry at all. However, there are some slight difference between the two. The EPF is managed by the statutory body by the name of EPFO, while PPF is directly managed by the government.
But, PPF is much more flexible than EPF.
First of all, any Indian can invest in PPF without any limitation, except NRIs. Whereas, EPF is applicable for only salaried employees working with registered companies under EPF Act.
Secondly, one needs to deposit only 500 INR per month to run PPF account, whereas one has to invest 12% of the salary, DA every month as per the compulsory rule.
Thirdly, PPF has a fixed tenure of 15 years and one can’t close it before that. However, partial withdrawal can be made after 7 years from the year of opening the account. Whereas, EPF can be closed permanently once you quite your job. Else, it can be transferred while changing the company until one is working.
Fourthly, you can open a minor account under PPF scheme and fund his/her account by yourself. Whereas, EPF works only with the employer and employee.
Fifthly, the only similarity is that the contribution to both schemes is tax free, and even maturity amount is also tax-free.
However, EPF is riskier because it is exposed to equity. The market movements may affect it time to time. Whereas, PPF is a traditional and risk-free investment plan which comes directly under the Indian government.
Comparing PPF vs ELSS
Although, both ELSS and PPF are amazing tax saving and investment options, but they have some differences that might affect your vision to a great extent. Thus, it’s better to know the difference.
First of all, ELSS is the only mutual fund which can be used to save tax and to make long term investment or wealth. Here, you have to make investment and returns are based on the performance of equities where your investment is being transferred.
Thus, it makes it a risky investment. Your investment is always exposed to market risk. And your returns are always dependent upon the market movement. Another major drawback is that there is a 10% tax on returns. Also, you can’t back-out from ELSS until the lock-in period is over.
Whereas, PPF is entirely controlled by the Indian government and doesn’t have any risk. Secondly, the returns are tax free and one can enjoy the interest without paying any tax on it. And one can also make a partial withdrawal after 7 years from the year of starting the scheme.
So, if you want risk free investment which is controlled by the government and offers amazing tax benefits without any deductions, then PPF is definitely the best pick. ELSS is meant for risk taking investors and who seek short term benefits. But, if you are a traditional investor then PPF is the best option for you.
Which are the Banks offering PPF(Public Provident Fund) account?
Nowadays, one can find out many banks offering PPF account. There are a lot of private and government banks offering PPF account. However, it is better if you pick PSU banks or leading private banks for better customer service and hassle-free facilities. Although the scheme remains the same with every bank, still it’s better to check with your bank before opening your PPF account. Currently, you can find out PPF in:
State bank of India
State bank of Patiala
Bank of Baroda
Central bank of India
Bank of India
Indian Overseas Bank
Punjab National Bank
United Bank of India
Oriental Bank of Commerce
Along with the above listed banks, you can also find out many more banks. All you have to do is to check with the bank and it’s guidelines for PPF account.
What are PPF’s tax benefits?
PPF offers income tax deduction under the section 80C for the amount of 1.5 lakh per year. You can also avail multiple tax benefits such as zero tax on earned interests etc. Due to it’s multiple tax benefits, PPF scheme is very popular among investors and employees.
How to take Loan on PPF (Public Provident Fund)?
One can easily avail loan on PPF after the completion of 3rd year. You can avail up to 25% of the savings in your PPF account and repay it in maximum 36 months. You will be charger 2% higher than the current rate of interest on your PPF account. Thus, one can enjoy the facility of loan on his PPF account in case of any family urgency.
How to go for Premature Withdrawal in PPF(Public Provident Fund)?
If you are in need of funds, then you can prematurely withdraw your investment in PPF with some limitations. The first limitation is that you can withdraw only 50% of the amount after the completion of 5 years from the date of opening the account. Before that you can’t withdraw money.
Maturity and Closure of PPF(Public Provident Fund) account
The PPF scheme is a long term investment and it matures after the completion of 15 years. There is a fixed lock-in period of 15 years. However, if someone wants to pre close it due to any reason, then he can withdraw only 50% of the investment and only after the completion of 5 years. However, it’s not that easy. The government has laid some guidelines to do so.
The government has listed only three reasons to withdraw or close it prematurely. It could be:
Death of an account holder
Also, if you choose to withdraw prematurely then the rate of interest will be 1% less. Thus, you will have to compromise on the reducing interest rate.
FAQ’s of PPF
- How many PPF account Can I maintain?
One can maintain only one PPF account on his name or account, except a minor account.
- What is the eligibility criteria to open a PPF account?
First of all, you should be a citizen of India. In case of minor, a father or mother can also open an account. However, in case of death of father or mother, grand parents can open a minor account on their behalf.
- Is there any lock-in period for PPF account?
Yes, there is a fixed 15 years of lock-in period for every PPF account. It matures after the completion of 15 years.
- Can we extend the duration of PPF account?
Yes, you can extend it to 5 years more by submitting Form 4 within a year from the date of maturity.
- Can I pre-close it or withdraw the funds before the lock-in period?
Yes, you can withdraw the funds once in a year after the completion of 7 years. However, the amount will not exceed beyond 50% of the balance.
- Can I avail the loan facility on PPF?
Yes, you can apply for a loan on your PPF account. After the completion of 3 years one can apply for loan. However, the interest rate will be 2% higher than the existing rate, and one has to repay the loan in maximum 36 months.
- What if I don’t make any deposit in one/ multiple years?
If you fail to make any deposit in one or more financial years, then you have to pay 50 INR penalty per year. However, the minimum deposit of 500 INR is mandatory for every PPF account holder.
- What are the documents required to open a PPF account?
One must have PPF account opening form followed by Nomination form, copy of PAN card, passport size photograph, and residence and ID proof in order to open PPF account without facing any problem.
- What is the maximum deposit that one can make per year in his PPF account?
The maximum amount that one can invest in his PPF account per year is Rs. 1, 50,000.
- Is it controlled directly by the Indian government?
Yes, PPF is directly maintained by the government of India.
- Is it the best retirement investment option?
If you are a traditional investor who doesn’t want to take much risk, then PPF is the best long term investment option for retirement purpose.
- Can I access my PPF account details online?
Yes, most of the private and public sector banks are now offering instant online access to your accounts so that you don’t need to make much effort.