PPF Account Benefits

Public Provident Fund or PPF investment is a popular and safe investment scheme among investors. You can build a handsome corpus with little savings and good returns. PPF investment comes with multiple benefits of partial withdrawal, loans against PPF, tax benefits, being government-backed, and guaranteed returns.

What is a PPF Investment?

Public Provident Fund or PPF investment is a popular and safe investment scheme among investors. You can build a handsome corpus with little savings but get good returns on it. There are multiple benefits of PPF investment like partial withdrawal, loans against PPF, and tax benefits. PPF is also backed by the government and guarantees returns.

Features of PPF Investment

The basic features of a Public Provident Fund/PPF Investment are listed below:

  • PPF has a minimum tenure of 15 years. Investors who wish to continue their PPF investment can also extend it for every next five years
  • The minimum investment for a Public Provident Fund is Rs. 500 and a maximum of Rs. 1,50,000 for every financial year
  • Public Provident Fund investment can be both in a lump sum or in installments. You have to pay at least once annually or you can pay in monthly installments. Payment is for 15 years or as long as you continue the PPF investment
  • You can deposit money through various modes like cash, cheque, DD (Demand Draft), or money/fund transfer
  • You can designate a nominee for your Public Provident Fund account but it can be only in the name of one individual. A PPF account can NOT be a joint account, neither HUFs can hold a PPF account

Apart from these, there are other features of a PPF investment that make it investor-friendly and can be counted as its advantages.

Benefits of PPF Investment

PPF investment is a safe one. It is due to minimal associated risks and more benefits. It is often considered a Pension Tool. You can withdraw the interest amount leaving the principal amount untouched.

Long Term Capital Appreciation

PPF mobilizes small savings from investors into long-term capital appreciation coupled with some interest in it. This is the government’s objective in encouraging investors to go for a Public Provident Fund investment. Hence, it comes with a lock-in for 15 years and further extensions in blocks of 5 years. PPF investment is the best post-retirement fund to serve the financial requirements of old age.

Low Risk & Consistent Returns

Risk-averse investors should open a PPF investment account. Investors who want consistent returns as well as security of the principal amount. The sovereign guarantee makes it a safer investment plan. Invest the idle money or save a part of the income to accrue returns on the same through the safe investment of the PPF scheme.

Loans Against PPF

An additional benefit of a PPF investment is that it not only helps to attain future goals but also to fulfill short-term goals. It is also helpful in times of financial woes when you can request a loan against PPF. You can take loans against PPF between the 3rd and 6th years. The loan amount disbursed is a maximum of 25% of the second year’s investment amount. The second year’s investment is that of the year that precedes the loan application year. If you repay it in 36 months or by the 6th year, then after complete repayment you can go for a second loan in the 6th year.

Partial Withdrawal

You can partially withdraw money from PPF, other than loans when facing financial hardships. You can make one partial withdrawal from the 5th year onwards. Partial money withdrawals from the PPF investment account can be in either way as below:

  • 50% of the invested amount until the 4th year when you can request it in the 5th year
  • 50% of the account balance until the preceding financial year when you request in the current year after 5 years or more

Premature Closing

Although PPF is for long-term investment, there is an option for a premature closing. It is to support investors and use their money when in dire need of it. However, one can go for premature withdrawal of all invested money only after 5 years. It is allowed under the below listed certain conditions only:

  • When the PPF account holder or dependent spouse, children, parents suffer from a life-threatening disease or critical illness. You will need to submit all relevant medical reportsand other relevant documents. You can use the PPF account balance for medical purposes
  • For funding the higher education of children. Bring admission confirmation letters/documents and fee receipts to get financial assistance by closing the PPF investment account prematurely
  • NRIs cannot have a PPF account. You can go for premature closing when there is a change of residence status. Present your Passport, Visa, ITRs (Income Tax Returns), etc. as required. An investor has to be an Indian citizen for holding a PPF account. It is one of the eligibility criteria for PPF account

The rate of interest (ROI) applied for premature closing is 1% less than the currently prevailing one.

Tax Saver Benefits

PPF investment has tax saver benefits under Section 80C deductions. It is one of the few investment plans in India that enjoys the advantage of Exempt-Exempt-Exempt (EEE) tax status. The tax-exempted amount deposited in the Public Provident Fund in each financial year up to Rs. 1,50,000 is exempted from tax. The interest earned on PPF is also free from tax liabilities. Also, at the time of withdrawal, the maturity amount including the principal sum and the interest is free from taxation.

Wrapping it up:

All the above-mentioned benefits make PPF investment an efficient investment plan. PPF is one of the safest investment options. Even a court’s order doesn’t allow to touch PPF to pay off the debtors. There is transparency in interest calculation as well. Government declares the ROI (rate of interest) every quarter. The weighted average of all quarterly rates of interest (ROI) gets compounded every year. PPF often offers a higher rate of interest than bank fixed deposits (FDs). There is liquidity with facilities of loans and partial withdrawals. Tenure extension is flexible as well.

How many times can I extend the tenure of PPF investment?
You can extend the tenure of PPF investment as you like. It can be extended in a block of 5 years after completion of its lock-in period of 15 years. There is no upper limit.
Can I extend PPF for less than 5 years?
No, it cannot be extended for less than 5 years.
How do I know the current rate of interest for PPF?
The current rate of interest for PPF is updated every quarter of a financial year through a circular by the Ministry of Finance, Government of India. For example, the rate of interest for Quarter2 (Q2) that is July – September in the FY 2021-22 is fixed at 7.1%.
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