Public Provident Fund (PPF) is a small savings scheme for residents of India. It was introduced in the year of 1968 by the Ministry of Finance, Gov. of India. This scheme is one of the most popular secure saving schemes in India.
The PPF scheme offers an income tax deduction of up to Rs. 1.5 lakh under section 80C IT Act. As of now, the PPF account holder can deposit up to Rs. 1.5 lakh per financial year. An individual can have only one PPF account and has the option to add one or more nominees.
A person can open a Public Provident Fund account at any age. There are no upper limit restrictions. A person can have only a single PPF account. NRIs are not classified under this scheme.
There is a list of documents that can be required for opening a Public Provident Fund in a bank or post-office:
Nowadays, the PPF account opening is very easy. This can be opened in both online or offline mode. Most of Banks provides online PPF account opening facility from their Internet Banking portal. However, offline mode is also available. One can approach the Post Office or the nearest bank to open a PPF account. After mandatory paperwork, the account can be opened in offline mode.
PPF offers a pretty good interest rate. However, the interest rate is not consistent. The Government of India revises the rate quarterly. As a result, the PPF interest-rate fluctuates for years. Despite all these, the scheme returns a high-rate of interest. As of January-2021, the latest interest rate of the PPF scheme is 7.1% that compounds annually.
31st March of every year, the accumulated interest is gets credited into the account. The consideration of monthly interest is estimated depending on your deposits between the 5th day to the last day of per month. It's a best practice to invest within the 5th of the month of a year. The reason is, after the 6th month of a year, no interest is going to be credited.
Public Provident Fund allows the investment of a minimum of Rs.500 to Rs. 1.5 lakh with a maximum of twelve installments per financial year. The installment must be multiple of Rs. 50.
Public Provident Fund comes with a locking period of 15 years from the account opening date. The tenure is allowed to extend by five years of interval. Extensions can be made by submitting the extension application to the concerned institution before maturity. One application will extend the tenure for the next five years.
The PPF account will mature only after the completion of 15 years. One can not close or withdraw funds until its maturity. However, with some limited conditions the PPF account can be closed.
Completion of 6 years, a maximum of 50% of the corpus can be withdrawn with a reasonable cause like critical medical expenses, higher education, the marriage of a child, etc.
The Public Provident Fund scheme allows an option to add one or more nominees. Immediate adding of nomination while opening a PPF account is not allowed due to some legal issues. Later, in order to add a nominee, a nomination form has to be submitted to the concerned authority. Anytime, the nominee can be changed later if required.
The loan facility against PPF is available between the 3rd financial year and the 6th financial year from the opening date of the account. One can get a loan up to 25% of the corpus, depending on the investment of the last two preceding years.
As an example, one namely Ajay opened a PPF account in April 2020. He will be able to get a loan between the 3rd financial year (2023) and the 6th financial year (2027).
The rate of interest of the loan will be 2% higher than the persuading interest-rate on the value of your deposits.
As an example, if the current PPF interest rate is 7.1%, then the rate of interest of the loan against PPF will be 9.1%. The interest must pay-off within thirty-six (36) months from the date of the loan. If any reason the account holder fails to pay, then a penalty of an additional 4% interest will be applicable.
On repayment of the loan (principal+interest) within two months, the applied interest will get refunded back to the account. The next loan can be taken only after repaying the first loan.
PPF is a great choice for many who want good interest along with capital security. It can be said that the Public Provident Fund is the most popular long-term secure savings scheme offered by the Gov. of India. Here are some key advantages below:
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