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Public Provident Fund (PPF)

PPF full form, Public provident fund is a popular investment scheme among investors courtesy its multiple investor-friendly features and associated benefits. It is a long-term investment scheme popular among individuals who want to earn high but stable returns. Proper safekeeping of the principal amount is the prime target of individuals opening a PPF account.

What is PPF Account?

When a PPF scheme is opened, the PPF account is scheduled for the applicant where the money is deposited every month and interest is compounded.

Importance of a PPF Account

A Public provident fund scheme is ideal for individuals with a low risk appetite. Since this plan is mandated by the government, it is backed up with guaranteed returns to protect the financial needs of the masses in India. Further, invested funds in the PPF account are not market-linked either.

Investors can also undertake the public provident fund regime to diversify their financial and investment portfolios. At times of downswing of the business cycle, PPF accounts can provide stable returns on investment annually.

Features of a PPF Account

The key characteristics of a public provident fund scheme can be listed as follows –

Investment tenure

A PPF account has a lock-in period of 15 years on investment, before which funds cannot be withdrawn completely. An investor can choose to extend this tenure by 5 years after the lock-in period is over if required.

Principal amount

A minimum of Rs. 500 and a maximum of Rs. 1.5 Lakh can be invested in a provident fund scheme annually. This investment can be undertaken on a lump sum or installment basis. However, an individual is eligible for only 12 yearly instalment payments into a PPF account. Investment in a PPF account has to be made every year to ensure that the account remains active.

Loan against investment

Public provident funds provide the benefit of availing loans against the investment amount. However, the loan will only be granted if it is taken at any time from the beginning of 3rd year till the end of the 6th year from the date of activation of the account.

The maximum tenure of such loans against PPF is 36 months. Only 25% or less of the total amount available in the account can be claimed for this purpose.

Eligibility Criteria

Indian citizens residing in the country are eligible to open a PPF account in his/her name. Minors are also allowed to have a Public provident fund account in their name, provided it is operated by their parents.

Non-residential Indians are not permitted to open a new PPF account. However, any existing account in their name remains active till the completion of tenure. These accounts cannot be extended for 5 years – a benefit available to Indian residents.

Interest on a PPF Account

The interest payable on public provident fund schemes is determined by the Central Government of India. It aims to provide higher interest than regular accounts maintained by various commercial banks in the country.

Interest rates currently payable on such accounts stand at 7.1%, and are subject to quarterly updates at the discretion of the government.

How to Open a PPF Account

Both offline and online procedures are available for an individual provided he/she meets requisite parameters mentioned in the eligibility criteria. Activating PPF online can be done by visiting the portal of a chosen bank or post office.

The following documents have to be produced at the time of activation of a public provident fund account –

  1. KYC documents verifying the identity of an individual, such as Aadhaar, Voter ID, Driver’s License, etc
  2. PAN card
  3. Residential address proof
  4. Form for nominee declaration
  5. Passport sized photograph

PPF – Tax Benefits

Income tax exemptions are applicable on the principal amount invested in a PPF as an account. The entire value of investment can be claimed for tax waiver under section 80C of the Income Tax Act of 1961. However, it should be kept in mind that the total principal that can be invested in one financial year cannot exceed Rs. 1.5 Lakh.

The total interest accrued on PPF investment is also exempt from any tax calculations.

Therefore, the entire amount redeemed from a PPF account upon completion of maturity is not subject to taxation. This policy makes the public provident fund scheme attractive to many investors in India.

Withdrawal 

There are multiple clauses that an individual must adhere to in case he/she wants to withdraw funds from the PPF account.

Mandatory lock-in of 15 years is imposed on the principal amount invested in such plans. In case of emergencies related to specific end-uses, partial withdrawal can be made. However, this amount can only be extracted after the completion of 5 years of activation of the account. Up to 50% of the total balance can be withdrawn in one transaction each financial year succeeding in the 4th year.

Investors should note that funds invested in a PPF account cannot be liquidated before the completion of the maturity period. Individuals looking for long-term risk-free investment options providing stable yields can easily opt for this government-backed instrument.

Loan Against PPF Scheme

  • Between the third and fifth years of your PPF account, you can take out a loan.
  • The loan amount can be no more than 25% of the second year immediately preceding the loan application year.
  • If the first loan is entirely repaid, a second loan can be taken out before the sixth year.

Procedure to Withdraw PPF Money

The procedure for withdrawing from a PPF

If you want to withdraw some or all of the money from your PPF account, you can do so.

Step 1: Complete the application form (Form C) with the necessary information.

Step 2: Submit the application to the bank branch where your PPF account is located.

What is Form C

Section 1 

It is a declaration section in which you must submit your PPF account number as well as the amount of money you wish to withdraw. Along with that, you must state how many years have passed since the account was first opened.

Section 2 

It is about office use and includes information such as:

  • The date on which the PPF account was opened.
  • The total balance in the PPF account.
  • The date when the previously requested withdrawal was granted.
  • The total amount of withdrawals available in the account.
  • The amount of money that has been authorised for withdrawal.
  • The signature and date of the person in charge – generally the service manager.

Section 3 

It requests information about the bank where the funds are to be credited directly or the bank in whose favour the cheque or demand draught is to be issued. It is also required to include a copy of the PPF passbook with this application.

FAQs

Q1. How many PPF accounts can one have?

An individual can only open one PPF account in the country, either at a bank or at a Post Office.

Q2. How to convert a minor’s PPF account into a major’s?

When a minor PPF account holder becomes a major or turns 18 years old, you can change the status of the account from minor to major by submitting a revised application form along with the relevant documentation stating the account holder’s age. As an attestation, the guardian might submit the application along with the account holder’s signature on the application form.

Q3. What is the minimum lock-in period for a PPF investment?

The real term of the PPF account is 15 years, which is the minimum lock-in time for a PPF account.

Q4. How much can I withdraw from my PPF account?

After five years from the date of account opening, you can withdraw a portion of the funds. However, at the conclusion of the fourth year from the date of opening, you can only withdraw up to 50% of the total account amount.

Q5. Can I close my account before 15 years?

Individuals are only permitted to close their PPF accounts after five years. In addition, certain requirements must be met in order to close the account.

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