Public Provident Fund, referred to as PPF, is one of the most sought after investment options for risk-averse investors. The reasons behind its popularity being safety due to back up by the Government, low-risk profile, and a fair return on investment. The main aim of the PPF scheme was to ensure social security in retired life. However, people have used this scheme to save up for future contingencies, medical treatments, a child’s higher education, and a wedding. It even provides the facility of tax exemption under section 80 of the Income Tax Act.
Things you must know about PPF
PPF schemes can be easily opened in post offices, banks, and other recognized financial institutions. If you are planning to maybe & will open a PPF account soon, here are few points about PPF that you should know.
PPF Account for NRIs
The eligibility criterion for opening a PPF account is to be a resident of India. A Non-Resident Indian is not eligible to open a PPF account. However, if NRI had a pre-existing PPF account while residing in India, he may continue it. But, no new PPF account can be owned by the NRIs.
PPF Account for Minors
Minors cannot open a PPF account, but an adult may open a PPF account on behalf of his child as a guardian. In case the guardian has a separate PPF account along with another in the child’s name, a contribution limit is set. The guardian cannot deposit more than 1.5 lakhs per year in any of the accounts.
Lock-in Period and Maturity Date
According to the PPF scheme, the lock-in period is 15 years. The maturity date of a PPF scheme is calculated from the end of the financial year when the first deposit was made. It does not consider the month of deposit but the year of deposit.
The interest rate for the PPF account is currently around 8.1%. In the case of monthly contribution, the interest is levied on the minimum balance of the account between the 5th and the end of the month. In the case of yearly contribution, the interest is computed on an annual basis on 31st March, i.e., the end of every financial year.
The minimum contribution for the PPF account should be Rs. 500 a year while the maximum limit is Rs. 1.5 Lakhs a year. The number of contributions for an annual contribution should not be less than 16. In the case of monthly contribution, the number of contributions should be 192 contributions considering one contribution for each month for 16 years.
One of the advantages of PPF accounts is partial liquidity. It offers partial withdrawal of half of the balance amount of the previous financial year. Partial withdrawal can be made only after the seventh year of the PPF account and are subjected to specific terms and conditions. The limit of the partial withdrawal amount is 50% of the fourth year balance or 50% of the preceding year balance, whichever is lower.
Loan from PPF
PPF deposits offer the benefit of loans subjected to a set of terms and conditions. The maximum limit of the loan amount is 25 percent of the balance at the end of the 2nd immediately preceding year. One can avail of this benefit from the third year of the tenure of the PPF account till the sixth year. The loan taken on the PPF deposit should be repaid in 24 months. The rate of interest charged on loan is 2% more than the interest rate of the PPF account.
Penalty for Defaulters
As said earlier, the minimum deposit is Rs. 500 a year. Even though a PPF account can be opened at Rs. 100, one should maintain a minimum balance of Rs. 500 in the PPF account. If maybe ones fail to maintain the minimum balance in the account, the defaulter would be charged a penalty of Rs. 50.
Nomination and Premature Closure
The facility of providing a nominee for the PPF account is available. However, one cannot opt for a nomination facility for a PPF account in the name of a minor.
As per the rules, a premature closure for such accounts is not allowed. Premature closure is only possible in case of the death of the holder.
Extension of 5 years
The PPF account holders can extend their tenure in the block of 5 years after the completion of their tenure of 15 years. The account holder should submit the bank or post office a duly filled Form H for the extension. The rate of interest for the extended tenure remains unchanged, and the facilities remain similar. PPF scheme can be considered as one of the best tax-exempt investment options in India.