Public Provident Fund (PPF) is a savings-cum-tax saving investment scheme in India. Introduced in 1968 by the National Savings Institute and backed by the government of India, it offers stable returns on your investments.
It is a long-term investment scheme, which assures you the safety of your principal amount and offers high returns on the invested amount.
The most important feature of PPF is its returns and interest earned are completely tax-free. To accumulate a huge corpus, you need to open a PPF account and start investing.
How You Can Open a PPF Account?
You can open a PPF account with a post office, any nationalized banks (like SBI, Punjab National Bank, Canara Bank), or authorized private sector banks (like HDFC Bank, ICICI, Axis Bank).
You can open a PPF account either offline or online mode. For online mode, you need to visit the office of a post or bank branch for submitting the duly filled account opening form along with the requisite documents and open account. To open a PPF account online, you only need to visit the online portal of a chosen post office or bank branch.
Documents Required to Open a PPF Account
At the time of submitting the account opening form, you also need to submit the following documents.
- Identity proof such as Aadhaar Card, Driving License, Voter ID, etc.
- Residential address proof
- PAN card
- Form for nominee declaration
- Passport-sized photograph
You are required to carry a copy with the original documents while visiting the post office/ bank branch for completion of the account opening process. Also, you need to submit Rs. 100 to open your PPF account.
- Resident Indians having 18+ years of age can open a PPF account
- No maximum age limit to open an account
- Account can be opened for a minor child aged below 18 years. Such account should be operated by a parent or guardian
- Joint PPF accounts are not allowed
- Non-resident Indians (NRI’s) are not allowed to open an account
Features of a PPF Account
The key features of a public provident fund account are as listed below.
Amount to Invest
A minimum of Rs. 500 up to a maximum of Rs. 1.5 lakh can be invested in a financial year. You can invest this much amount via lump sum or installment basis. If investing through installments, you are allowed to contribute for only 12 installments in a financial year.
You need to invest the minimum required amount every year to make sure that your account remains active. You can make deposits into a PPF account by cash, cheque, demand draft, or make an online transfer.
Duration of Investment
Under this scheme, you need to invest for 15 years. During this period, you can’t withdraw funds completely. An investor has an option to extend this tenure further by 5 years upon completion of 15-years of investment tenure.
Loan against Investment
An investor can avail loan against the invested amount. A loan facility is available, but you can avail it from the beginning of 3rd year till the completion of 6th year of investing in PPF. The interest rate on such loan is just 1% and you need to repay it within 36 months.
Interest on a PPF Account
The current interest rate on PPF is 7.1% per annum. The interest payable on this scheme is determined by the central government of India and it is subject to change quarterly basis at the discretion of the government.
Benefits of a PPF Account
As PPF scheme is a government-backed investment, it comes with guaranteed returns on your invested money. It is a just right investment for people looking for safety of invested amount plus secure returns.
- The amount you invest in the PPF account is tax-exempt under section 80C of the Income Tax Act, 1961. You can avail of this tax exemption, if your investments don’t exceed Rs. 1.5 lakh in a financial year.
- The interest earned and the accumulated amount are all tax-exempt.
- PPF investment is a tax-saving tool for both salaried and self-employed, as they can invest up to Rs. 1.5 lakh annually and earn tax-free returns.
As there is a lock-in period of 15 years, your investments will take advantage of the power of compounding that will help build a huge corpus at the maturity of the scheme. You can use PPF amount to fulfil various financial goals such as children’s higher education, retirement planning, etc. To ensure this investment offers you high returns and build a corpus, you should start investing once you start earning.
When it comes to withdrawing amount from your PPF account, there are some clauses that you must adhere to.
- You can withdraw the entire amount after the completion of the mandatory lock-in period of 15 years.
- During emergencies, you can make partial withdrawal from 6th year from the end of the year in which your account was activated. For example, you opened your PPF account in year 2018, you can withdraw amount on or after 1st April, 2024 (after completion of 5 years).
- You can withdraw up to 50% of the total funds in your account that remains at the end of the preceding year or at the end of the 4th financial year, whichever is lower.
Public Provident Fund (PPF) is a popular tax-efficient investment scheme in India. It is a government-backed investment instrument that offers high returns that help you build wealth. You can start just investing in PPF that help fulfill your family’s long-term financial goals.