What is a PPF Account or Public provided account?
The PPF account or Public Provident Fund scheme is one of the most favorite long-term saving-cum-investment products for investors, due to its features of safety, returns, and tax savings. The PPF account was first open for the public in the year 1968 by the Finance Ministry’s National Savings Institute, from that time it has emerged as a powerful tool to create long-term wealth for investors.
Investors use the PPF as an investment instrument to build a corpus for their retirement by putting aside sums of money regularly, over long periods of time.
Eligibility for opening PPF account in India :
- It can be opened by Resident Individuals and Individuals on behalf of a minor of whom he is the guardian.
- A joint account is not allowed
- NRI is not eligible to open a PPF account.
- An individual can open only one PPF, multiple accounts is not allowed.
What are the features of the PPF accounts :
It is one of the best secured financial instrument for investment. There are the following feature of areas :
Minimum & maximum investment amount :
One can invest a minimum of Rs. 500 and a maximum of Rs. 1,50,000 in a financial year.
Minimum tenure of 15 years in. The investor can extend it in blocks of 5 years, if you want to continue it.
Who can open a PPF account :
A PPF account can be open by any Indian citizen.
Loan on PPF account :
PPF account holder can take a loan on his account between the 3rd and 5th year and make partial withdrawals after the 7th year for emergencies only.
Payment mode in PPF account :
An investor can make deposits every month or in a lump sum through cash, cheque, DD or online transfer.
PPF account type
The PPF accounts cannot be open jointly, though you can make a nomination.
Compulsory Investment in PPF account
Compulsorily a minimum deposit of Rs. 500 every year.
Safety of investment in PPF account
Investment in PPF is one of the safest investment because of the government of India’s guarantee.
Attractive interest rate :
PPF is favorite for investor due to attractive interest rate. The interest rate on PPF account is declared by the government every quarter.
Amount investment in PPF is eligible for deduction under income tax under section 80C in India, maximum claims amount Rs.1.5 Lac. P.a.
Advantages of PPF account :
There are following advantages of investing :
Higher interest rate
PPF offers a higher interest rate with the safety of your investment.
Tax Saving benefits
Investment to the PPF is tax-deductible up to Rs 1.5 lakh per annum under Section 80 C of the Income Tax Act, 1961 in India. The interest earned on the PPF is exempt from tax and the maturity value is also exempt from tax. Hence PPF has an Exempt-Exempt-Exempt (EEE).
Risk-free, guaranteed returns
PPF offers you the safety of your investment because it is backed by the government. The interest of PPF is also paid by the government. So your investment is fully secured in PPF.
Loan benefits on PPF
You can take a loan on your PPF account from 3rd to 6th year of tenure. The maximum tenure of the PPF loan is 36 months. The maximum loan that can be availed is 25% of the balance at the end of the 2nd financial year preceding the year in which the loan was applied for. Interest is 2% higher than the current PPF rate.
Partial withdrawal benefits :
Balance in your account could be withdrawn only on maturity. But in times of financial crises, partial withdrawals are permitted.
Disadvantages of PPF Account :
There are the following disadvantages to investing areas :
It does not provide much liquidity as compared to other investible avenues, it has a lock-in period of 15 years and partial withdrawal allowed in financial crises only whereas other investment avenues like FD, mutual fund have good liquidity.
It has a long lock-in period of 15 Years whereas other investment avenues offer minimum lock-in period or no lock-in periods.
NO Periodic Income option
Periodic income option is not available in PPF. In FD or post office we can choose periodic interest payment option like monthly or quarterly interest credit in account.
Fluctuation in Interest Rate
The interest rate on PPF is decided by the government every quarter and varies according to the market fluctuations each year.
Limited Categories of Investors:
There is a limitation of account that only individual can invest, HUFs, NRIs, Trusts, Foreigners, etc. cannot invest in PPF.
Pre-closure not allowed
Pre-closure of PPF is not allowed except in case of death.
Mode of Holding should be single only :
This account can be open single and the joint account is not allowed.
Returns are Low:
The Interest rate offer by PPF is low as compare to other investment avenues like a mutual fund, shares, etc.
Cap on Investment
In PPF account one can only invest up to Rs.1.5 lakh p.a. only.
How to open a PPF account
You can open offline and online, for opening an online account you should have a saving account, in particular, bank and net banking facility of those banks. You can log in net banking of particular bank and go to section PPF account then follow the instruction for the opening of an account.
In offline mode, you have to visit with your nearest post office or banks to open a PPF account. Below are the documents required to open an account offline.
Documents required to open PPF accounts :
- PPF account opening form, the same can be obtained from specified bank branches or can be downloaded online.
- ID proof
- Address proof
- Photograph of the account holder
- Nomination form
The interest rate on PPF account :
The interest rate is decided by the government every quarter. Following are rates :
|April –June, 2018||7.6%|
Source: National Savings Institute
Transfer of a PPF account
On the request of the account holder, it can be transfer from one bank to another bank or one branch to another branch without any charges.
Value of Investment in PPF account after 15 years
If you are investing Rs. 60000/- per year for a period of 15 years and current interest rate 7.9% then after 15 years value of your investment will be Rs. 1759457/–
Pease refer below table for more details :
|Year||Opening Balance (Rs.)||Yearly deposit Amount (Rs.)||Interest (Rs.)||Closing Bal (Rs.)|
PPF account is one the most secured investment avenue for an investor with a moderate interest rate. Liquidity is low in PPF account since the lock-in period of 15 years. It can create a good corpus for your retirement.
Disclaimer: Above information is for education purpose only. please take your financial advisor advice before investing.