Anyone working a nine to five job would acknowledge the importance of investing right and creating a corpus of funds that would be beneficial during retirement. While there are a plethora of investment opportunities available today, they necessitate market awareness to ensure healthy returns.
The advent of the public provident fund in 1968 put forth a fresh perspective on investment and was primarily aimed at mobilizing savings through investments. It qualifies as a productive way for working professionals to save money and yield healthy returns without incurring the risk of losing anything due to market fluctuations. Regarded as a savings plus tax-saving investment, the public provident fund is a safe investment option for anyone who wants guaranteed returns. In this article, we look at the rules of public provident fund to help you stay informed about the specific details of this lucrative investment opportunity.
- A PPF account is one of the best ways for people to gain healthy returns without taking any risk
- As a scheme supported by the Indian government, PPF is not market-linked
- The PPF can be used by investors to diversify their investment portfolio
- Investors are free to add one or more than one nominee to their PPF account along with the percentage they are willing to share.
What is Public Provident Fund?
You must have seen the term PPF being used a lot in your circle, but have you ever wondered what a PPF account really stands for? Allow us to break it down for you. A public provident fund account is an investment opportunity for the long term with an attractive rate of interest. The returns that you get from a PPF are not taxable, and the investments are eligible for tax deduction advantages under Section 80c of the Income Tax Act.
What are the Rules of Public Provident Fund Investment?
The rules of public provident fund are something that should be understood by anyone who wishes to open or already has a PPF account.
- Opening process: A PPF account can be opened at the nearest post office, nationalized banks like SBI and PNB, or even private banks like Axis, ICICI, and HDFC. The documents that would be required are the account opening application form, residential proof, KYC documents such as the Voter ID card, Driving License, Aadhaar card etc., passport size photograph, and nominee declaration form. Once all the documents are submitted, you can deposit the required amount towards the opening of the bank account.
- Rate of interest: Announced by the Finance Ministry of India, the rate of interest stays the same across all PPF accounts regardless of whether the account is held by the bank or a post office. The interest rates are calculated on a quarterly basis and are subject to change. Presently, the rate of interest for a PPF account is at 7.1% p.a.
- Account maturity and transfer: A PPF account matures in fifteen years and can be extended in the block of 5 years each. The tenure can be extended within a year of maturity. The rules of public provident fund allow the transfer of an account from one branch to another, post office to a bank, or vice versa without any additional charges.
- Deposit: The rules of public provident fund necessitate a minimum investment of Rs 100. That being said, you will need to deposit a minimum amount of Rs 500 in a financial year. The upper limit to the amount that can be invested is INR 1,50,000 in a financial year.
One of the foremost rules of public provident fund is that they can only be opened by an Indian citizen. An individual can choose to open a PPF account in their own name or on behalf of a minor. The public provident fund rules prohibit an individual from opening more than one account.
Did you Know?
In the financial year 2020, the total value of the public provident fund (PPF) held by the population in India with the post office as a financial asset amounted to over INR 897 billion. This was a significant increase from 2019’s INR 756.91 billion.
PPF Withdrawal Rules
It is important to know the public provident fund withdrawal rules to clear any confusion regarding the partial withdrawal, premature closing, or taking a loan.
- According to the rules of public provident fund, partial withdrawals can be made from the seventh financial year
- The rules of public provident fund state that a complete closure and complete withdrawal of the PPF account can be made after the fifth financial year for the purpose of medical treatment of life-threatening conditions (family member or account holder) or for pursuing higher education
- Between the third and sixth financial year of opening the PPF account, an individual can apply for a loan on their PPF account. According to the rules of public provident fund, the rate of interest is two percent more than the interest that is being earned from the account.
Benefits of Investing in a PPF Account
- The principal and interest amounts in any PPF account are safe and risk-free. As a government-backed initiative, a PPF account is a constructive way to save money in the long term
- The deposits in a PPF account up to INR 150,000 and the interest accrued on the savings are tax-free
- The returns on PPF are higher than fixed deposits (FD)
- According to the Government Savings Banks Act 1873, the PPF account is safe from any order passed by the Supreme Court. This further solidifies its safety and makes it a risk-free investment in the present world.
Word to Remember
Rate of Interest: The rate of interest on any PPF account is the amount that is due per period as a proportion of the amount deposited into the PPF account. Presently, the rate of interest on PPF accounts is fixed at 7.1% per annum.
Therefore, PPF is one of the best investment options in India. It entails zero risk and is immune to any market fluctuation. Having a clear idea about the rules of public provident fund can enable investors to stay ahead of the curve and reap healthy returns on maturity. The tax-free interest coupled with the eligibility to save under section 80c of the Income Tax Act makes it one of the best ways to save money in the long haul. While the decline in interest rates has led to a lot of people looking for other investment opportunities, PPF is still one of the most popular tax-saving investment options in the country.
No, it is not mandatory to withdraw the PPF account balance at the end of maturity. You can keep the PPF account open and accrue interest till the time you decide to withdraw or close the account.
The PPF account tenure can only be extended for a minimum of 5 years after maturity.
Can a PPF account be closed if one does not want to contribute further?
According to the rules of public provident fund, an account can only be closed after a minimum of 5 years. The closing will require the account holder to fulfil certain criteria to ensure complete closure.
No, it is not mandatory to add nominees to the PPF account. However, it is advised to add at least one nominee to avoid any conflict in situations of an untimely demise.
Read more about Pension Funds.