A Public Provident Fund is a financial instrument that allows a user to save a sufficient amount of money to be received at the time of maturity along with the earned interest. The National Saving Institute of the Ministry of Finance started the PPF scheme in the year 1968 intending to let users save money annually in order to build a retirement corpus. In other words, PPF can be called a long term saving cum investment instrument or savings cum tax saving investment.
There is a lot more to learn about PPF, its benefits, withdrawal rules and more. Let’s understand more about it in detail.
What is PPF or Public Provident Fund?
PPF or Public Provident Fund allows an individual to save a part of his/her income annually to build a retirement corpus all the while earning competitive interest on the deposited amount and getting tax-saving benefits too. The PPF was introduced to encourage the saving habits of people, especially those who don’t come under the Employee Provident Fund Organisation (EPFO). Investing in a PPF account earns an individual interest on the capital amount and allows him/her to claim tax deductions of up to Rs. 1.5 lakh under section 80C of the Income Tax Act.
What are the Features of PPF or Public Provident Fund?
There are a number of PFF features that can let an individual take benefit of-
- The interest paid on PPF is calculated every month and the amount is credited to the account after the completion of the financial year
- The interest rates are decided by the government every quarter
- The interest rate is calculated every month on the lower PPF balance in the account after the 5th of every month to the last date of the month
- It is advised to contribute an amount to the PPF account before the 5th of every month
- PPF minimum lock-in period is 15 years
- An individual can withdraw the full corpus amount at the end of 15 years
- An individual can keep the amount invested in the PPF account for a longer period even without adding contributions
- There is no restriction to keep the amount invested in the fund after the lock-in period of 15 years
- Premature withdrawals are allowed but only in case of urgencies and emergencies. In such special cases, required documents and details must be presented
- Individuals are required to invest Rs. 500 as a minimum value
- An amount of Rs. 1.5 lakh can be contributed to the PPF account
- Any contribution of more than 1.5 lakh will be rejected automatically
- Deposits can be made either by cash, cheque, demand draft or online
- A PPF account holder can nominate more than one person
- By nominating a person or more than one person, it is required to mention the percentage of share for all the nominees
- There isn’t a nomination facility in the case of PPF account for minors
- PPF account holders can get a loan against the balance in the PPF account
- The loan can be availed between the 3rd and 6th financial year of opening the account
- The interest charged on the PPF account is 2% per annum
- The principal amount has to be repaid first within 36 months from the first day of the month following the month in which the loan was taken
- The principal amount can be paid in a lump sum or in two or more monthly instalments
- Failing to repay the principal amount within 36 months will attract an interest rate of 6% per annum
- In case of acquiring a loan against the PPF account, an individual will not be given any interest until the loan amount is paid
- It is not possible to take another loan until the first loan amount is paid
Who can open a PPF account?
Listed below are the people who are eligible to open a PPF account–
- Only Indian citizens are eligible to open a PPF account
- An Indian citizen settled abroad can continue operating his/her PPF account
- Parents/guardians on behalf of their minor children can open a PPF account
*It is to be noted that joint accounts and multiple accounts are not allowed to be opened
How to open a PPF account?
There are two ways to open a PPF account- Online and Offline
- Open PPF account offline
- Visit any bank
- Connect with the banking personnel to open a PPF account
- Fill the form, submit the required documents and the amount to deposit
- Upon verification, the PPF account will be opened
Banks are the only medium through which an individual can open a PPF account; however, the amount will still go to the government and not to the particular bank
- Open PPF account online
There are banks that offer the opportunity to open a PPF account online. Following are the steps to open a PPF account through the bank’s net banking facility; however, these steps might vary from one bank to another-
- Log in to the respective bank’s internet banking portal
- Locate the option to open a PPF account
- Choose the option- self account or minor account
- Enter all the required details
- Enter the amount you wish to deposit
- Read the instructions that state whether the bank should deduct the amount at fixed intervals or lumpsum
- Get the OTP to complete the verification process
- Once the verification gets done, the PPF account will be opened
- Save the account number which is displayed on the screen for future reference
Some banks require the individuals to submit the hard copies of all the entered details along with the reference number and documents for KYC details
Documents Required to Open a PPF Account
Given below are the documents required to open a PPF account-
|Documents to open PPF account|
|PPF account opening form- Form A|
|KYC documents like Aadhaar card, PAN card, Voter ID card etc|
|Proof of Address|
|Passport size photograph|
|Nomination form- Form E|
What are the Limitations of the PPF Account?
A PPF account offers numerous benefits; however, it still has a few limitations written below-
- PPF account comes with a lock-in period of 15 years, which becomes a problem in case there comes an emergency or if somebody would want to meet financial requirements
- If one wants to withdraw the amount before maturity, there are certain rules & regulations that are required to be followed
- PPF does not offer competitive interest rates
- Such accounts cannot be jointly held
- The maximum amount an individual can contribute to the PPF account is Rs. 1.5 lakh only. Amount more than that will automatically get rejected
- Only Indian citizens can open a PPF account, NRIs are not given the opportunity to open such an account
- One cannot close a PPF account within 5 years of opening the account. The PPF account can only be closed in case of life-threatening ailments affecting the account holder, his/her spouse, or children. Supporting documents are further required to support such claims
PPF account is a good option to invest in as it makes an individual build a bonus corpus. It is advised to understand everything about PPF, its benefits, limitations, amount to be deposited and more before contributing to it.