What is Public Provident Fund PPF – Key Features Explained

Public Provident Fund India

PPF is very popular investment scheme, and a trusted scheme. Its primary target being proper safekeeping of the principal amount, ie expecting guaranteed returns. With proper planning and strategic financial planning, investors opting for this fund can expect stable, and good returns. PPF is a critical part in any retirement portfolio.

Why open a PPF account?

A PPF is ideal for individuals who choose low to medium risk. To protect the needs of masses in India this plan is guaranteed by the Government of India. A Plus point is, they are not market linked. To diversify the financial and investment portfolio PPF is preferred. In times of dull economy or economic downtrend, PPF accounts provide stable returns annually.

While the risk is low in this savings saving, this option should be leveraged as much as possible by any investor, as one of the key features of PPF is that court can not attach PPF to any court order.

Key features of a PPF Account.

  • Investment tenure: A PPF has a lock-in period of 15 years with an option to extend it by 5 more    years, as per need. During the lock-in period funds cannot be withdrawn completely.
  • Principal Amount: Annually one can invest any amount ranging from Rs.500 to Rs.1.5 Lakh in a lumpsum or instalment basis. Maximum 12 instalment payments are eligible. To keep the account active, every year investment should be made in PPF account.
  • Loan against Investment: From any time from the beginning of the 3rd year till the end of the 6th year from the date of activation of account, a loan can be availed against the PPF investment amount, tenure being 36 months. 25% or less can be claimed.

Eligibility Criteria – Who can invest?

Resident Indian Citizens including minors (provided it is operated by their parent) can open a PPF Account. Non Resident Indians cannot open a new account but their name remains active till the completion of tenure, in case of any existing account. Further, they can’t extend the tenure by 5 more years.

Currently, the Interest rate is 7.9% subject to quarterly updates at the discretion of the government. You can check the latest rates at http://www.nsiindia.gov.in/InternalPage.aspx?Id_Pk=55

The following are the documents to be produced to activate a PPF Account –

  1. KYC documents verifying the identity of the individual like Aadhar, Voter ID, Driver’s License etc.
  2. PAN Card.
  3. Residential Address proof.
  4. Passport sized photograph.

Both offline and Online procedures are available for any interested investor provided he/she meets the eligibility criteria. To activate PPF Online one has to visit the portal of a chosen bank of post office.

Tax Benefits

The Principal Amount invested in a PPF account is exempt under Income Tax Act 1961. u/s 80C entire value of investment can be waived keeping in mind that the maximum principal amount invested in any financial year should not exceed Rs.1.5 lakh. The interest accrued on PPF is totally exempt. In addition to this, the entire amount redeemed upon the completion of maturity is also fully exempt. This being the major reason behind its capability to attract masses of investors in India.

Withdrawal

Before withdrawing funds from the PPF Account, an investor needs to adhere to multiple clauses.

  • Mandatary lock in period of 15 years on the principal amount invested in such plans, except in cases where emergencies related to specific end uses, partial withdrawal can be made. This is possible only if the investment has completed a period of 5 years from the date of activation of the account.
  • Only up to 50% of the total balance can be withdrawn in one transaction each financial year succeeding in the 4th year.
  • Funds invested in a PPF account cannot be liquidated before the completion of the maturity period.

It can be summed up that since the PPF investments are majorly meant for long term, risk free investment options, the investors who prefer such plans can undoubtedly go for it. This investment plans are government-backed instruments, so they guarantee stable returns too.

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Krishna Rath is a SEBI Registered Investment Adviser, and since 2015 has been educating netizens on investments and insurance. Krishna is a fee only SEBI RIA and is Odisha's first SEBI RIA. With background in IT, Krishna is changing the advisory space with new innovations in AdvisoryTech.

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