The Public Provident Fund (PPF) scheme was started by the National Savings Organization in 1968 to promote small savings and investments. The Scheme offers an investment option with decent returns together with income tax benefits under Section 80C. PPF or the Public Provident Fund is the most popular long-term savings tool in India.
The scheme aims to make small savings by providing an investment with returns along with benefits for income tax. Investors mainly use PPF in order to build a corpus for their future by putting sums of money aside on a regular basis.
Eligibility criteria to open a PPF account:
- Anyone who is a citizen of India and is 18-year-old or more.
- A PPF account can also be opened for minors (below the age of 18), but the maximum limit of Rs 1.5 lakhs per year is applicable to the deposits made in for minor as well as major/guardian’s account, together.
- Grandparents are not allowed to open a PPF account for their minor grandchild.
- NRI are not eligible to open a PPF account, and if any account holder tends to leave the country and obtains the status of NRI is eligible to maintain their account till the time the account gets matured, which is the account’s term of 15 years. But the matured account can’t be extended.
- Hindu undivided families are also not eligible for opening a PPF account. The HUF accounts which were opened before 13 May 2005, can be continued till the time it gets matured and cannot be extended further.
- A foreigner is not allowed to open a PPF account.
Rate of interest and return:
- You can open a PPF account with just Rs 100 in any of the recognized banks.
- It is mandatory to deposit at least a minimum deposit of Rs 500 every year. If you fail, your account will be deactivated, and you’ll then be required to pay Rs 50 as a penalty along with Rs 500 for that specific year.
- A PPF account holder can deposit a maximum amount of Rs 1.5 lakhs and if there is amount deposited in excess of Rs 1.5 lacs in a financial year, it won’t earn any interest.
- The amount can be deposited in maximum or in a lump sum of 12 instalments annually, which doesn’t mean that you’ll have to make a deposit every month.
- The interest rate is decided every year by the Ministry of Finance. Presently, the interest rate is 8.0 per cent as of from October 1, 2018. The interest is paid on March 31, every year. Also, the interest received is tax-free.
Withdrawals from PPF account:
Once you open a PPF account, the account is locked for at least 15 years and the entire amount can only be withdrawn after that. Whereas, pre-mature withdrawals can be made only after seventh financial year starts, and only 50 per cent of the amount that stood in the account at the end of the fourth year can be withdrawn as per pre-mature withdrawals.
The duration of a PPF account to get mature is 15 years, which can also be extended in blocks of five years and once the account gets mature, the complete amount can be withdrawn.
Pre-mature closure:
You can close your PPF account at a pre-mature stage only after the completion of five years for higher education or medical treatment of the account holder. Pre-mature closure of your account will also charge you with an interest rate penalty of 1 per cent.
Even after several decades, the Public Provident Fund (PPF) continues to be a favourite savings avenue for many investors. After all, the principal and the interest earned have a sovereign guarantee and the returns are tax-free. PPF is known to be the safest way of investment as it is guaranteed by the Government of India.
