PPF - A Beginners Guide
Updated On Feb 15, 2022
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In the fixed income space, the Public Provident Fund (PPF) is a popular investment avenue among investors. A PPF account allows individuals to invest up to Rs 1.5 lakh each year and also provides a tax deduction under Section 80C of the Income Tax Act. The account has a validity of 15 years and the account holder is supposed to deposit a minimum of Rs 500 every financial year.
The interest rate for PPF is set and paid by the government for every quarter. PPF interest rate for the first quarter of the year 2021-22 i.e. from 1st July to 30th September 2021 has been fixed at 7.1%.
Benefits of Public Provident Fund
Given below are a few benefits of Public Provident Fund (PPF):
PPF is a long-term investment with a lock-in period of 15 years. This means that the amount accumulated in a PPF account can be withdrawn only at maturity, which is 15 years from opening the account. This tenure can be extended by 5 years at the end of the actual lock-in period. Premature withdrawals are allowed but only in case of emergencies.
Interest on PPF
Interest on PPF balance is calculated every month and the amount is credited to the PPF account at the end of every financial year. The interest rates are pre-announced by the Government for each quarter. Each month, the interest amount is calculated on the lowest PPF balance in the account after the 5th of every month to the last day of the month. Hence, PPF investors are advised to make contributions to their PPF account before the 5th of each month.
Minimum And Maximum Investment
Individuals need to make a minimum investment of Rs. 500 annually. A maximum investment of Rs. 1.5 lakh can be made in one financial year in a PPF account.
PPF comes under the Exempt-Exempt-Exempt (EEE) category of tax policy which implies that the principal amount, the maturity amount, as well as the interest earned is exempt from taxes.
Loan Against PPF
A PPF account holder can take a loan against his PPF balance. However, the loan can be taken only between the beginning of the 3rd year and the end of the 6th year from the date of account opening. The maximum loan amount is limited to 25% of the PPF balance at the end of – the 2nd year or the year preceding the year in which the loan is being applied.
Opening Of The Account
NRIs are not eligible to open PPF accounts. However, a resident Indian who has become an NRI after opening an account can continue the account until maturity. Parents/guardians can also open PPF accounts for their minor children
Opening of joint accounts and multiple accounts are not allowed.
How To Open A PPF Account Online?
If you have an account with any of the above banks, you can use their net banking service to open a PPF account:
Step 1- Log in to your net banking portal
Step 2- Click in the option that allows you to ‘Open a PPF Account’
Step 3- Choose the relevant option between a ‘self account’ and a ‘minor account’
Step 4- Enter the required information such as nominee details, bank details, etc.
Step 5- Verify details like your Permanent Account Number (PAN), etc. that is shown on the screen
Step 6- After verifying the details, enter the amount that you wish to deposit in your PPF account. You will be asked to set up standing instructions that enable the bank to deduct the amount at fixed intervals or in a lump sum.
Step 7- After you make your choice, you will receive an OTP on your registered mobile number.
Step 8- Once this verification is done, your PPF account gets opened. You are advised to save the account number that is displayed on the screen for future reference.
Step 9- Certain banks may even ask you to submit the hard copy of the details entered along with the reference number and submit it to the respective bank with your KYC details. It must be noted that each bank may have a relatively different process for opening a PPF account. The general steps to be followed, however, remain the same.
Due to its guaranteed returns and tax benefits, PPF is preferred by many individuals, particularly small savers who have a low appetite for risk. However, there are several other savings and investment options available to those who want better returns in the long-run or more liquidity with their investments. Some of the common alternatives to PPF are ELSS, Tax-Saver FDs and NPS.
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Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.