PPF ACCOUNT – The Investment Vehicle
Public Provident Fund or PPF was introduced in 1968 in India with the aim to mobilize savings in the form of an investment, coupled with better returns. It can also be called as a savings-cum-tax-savings investment that helps in building a retirement corpus whilst saving on annual taxes.
WHAT IS A PPF ACCOUNT?
Public Provident Fund or PPF is a long-term investment option which offers better returns and interest rate on the amount invested. The returns and interest rate are not taxable under the income tax. The person has to open a PPF account and the amount deposited yearly will be claimed under 80C.
HOW TO OPEN A PPF ACCOUNT?
Public Provident Fund can be opened with either any nationalized bank (Punjab National Bank or State Bank of India) or a post office. Nowadays, even private banks like HDFC, Axis, and ICICI amongst others are authorized for this facility. All you need to do is submit a filled application form along with the documents, i.e. address proof, signature proof, and identity proof.
WHAT IS THE INTEREST RATE ON PPF?
The current rate of interest is 8% (for quarter October-December 2018 prior to which it was 7.6% rate) that is annually compounded.
FEATURES OF PPF
- Tenure: The minimum tenure of PPF is 15 years, which can be extended in blocks of 5 years.
- Investment Limit: PPF account allows a minimum investment of INR 500 and a maximum of INR 1.5 lakh for every financial year. Investments can be made in a maximum of 12 instalments or in lump sum.
- Deposit Frequency: Deposits in a PPF account has to be made once every year for 15 years.
- Opening Balance: The account can be opened with as low as INR 100.
- Nomination: A PPF holder can appoint a nominee for his/her account subsequently or at the time of opening the account.
- Risk Factor: PPF is backed by the Government of India, thus, it offers guaranteed, complete capital protection, and risk-free returns. The risk element is minimal.
- Who can Invest in PPF: Any Indian citizen is eligible to invest in PPF. NRIs and HUFs are not eligible.
As the rule states, closure of a PPF account is liable only upon maturity (the completion of 15 years). Once completed the tenure, the entire amount along with the accrued interest can be withdrawn with ease and account can be closed. But, if there is any sort of emergency and the account holder needs funds before 15 years, then the scheme permits partial withdrawal from 7th year (on completing 6 years). Also, a PPF account holder can withdraw pre-maturely up to 50% maximum amount that is in the account at the end of year 4th. Furthermore, withdrawals can be made once in each financial year.
THE TAX-BENEFITS OF INVESTING IN PPF
PPF is one of the investment vehicles that fall under the EEE category – Exempt-Exempt-Exempt. In other words, the PPF is deductible under Section 80C. Furthermore, the interest and accumulated amount are also exempted at the time of withdrawal.
Hey! Do you have an account in PPF? Planning to get one?