In the past, PPF could not be pre-closed before end-of-term (15 years from the date-of-opening of the account). Indian Govt has changed terms and conditions of certain small savings schemes effective 1, April, 2016.This includes popular investment vehicle Public Provident Fund (PPF) too.
– Will now be same as Govt Securities(G-Sec) of comparable maturity + 0.25%
– Rate will be notified in Mar 2016, for the year 2016-17
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Premature closure of PPF now possible subject to conditions
– In genuine cases such as serious ailment, higher education of children – More details awaited.
– A penalty of 1% reduction in interest payable on the whole deposit
– Only after five years from the date of opening.
What this means to PPF investors
1. With interest linked to Govt Securities, investors will always get more than inflation. In the past, when the inflation was more than 10%, PPF investors were paid only 8.7%. This is good news to investors who want to protect their investment from inflation.
2. By allowing premature closure of PPF in exceptional circumstances, Govt has removed the biggest barrier to PPF investment. Now you can safely invest into PPF knowing that you can withdraw it after 5 years in genuine cases like ill-health. In a way, now PPF is no different than Tax Saver FD or NSC, which are also locked for 5 years.