Imagine living in a world where you don’t need to pay any taxes. All your hard-earned income remains intact. Through none other than Public Provident Fund (PPF). PPF account benefits range from saving on taxes & guaranteed returns to an increase in wealth in the long term.
PPF is one of the most popular investment options that not only offer guaranteed returns but also provides tax-saving benefits. It is best suited for individuals who have zero risk appetite. This article will focus on PPF account benefits and everything you need to know before opening a PPF account.
Benefits of PPF (Public Provident Fund)
Public Provident Fund or PPF is a government back financial instrument that offers stable returns. Returns made in the long term via PPF investment can be used after retirement as well as to achieve long-term financial goals. Not only that, the advantages of ppf account are many.
Here are some of the PPF account benefits: –
PPF Interest Rate 2022
PPF interest rate for the year 2022-23 is 7.10%. For previous years the rates have been as follows-
|Interest Rate (PPF)
|October -December 2021
|January -March 2021
|October -December 2020
Extension of Tenure
PPF account benefits such as flexibility of tenure give investors a sense of control. A PPF scheme has a maturity period of 15 years. But you, as an investor, can extend your PPF account’s tenure in blocks of 5 years by submitting a PPF account extension form. You can do this as many times as you like. So, a PPF account holder who has opened their account at a young age can use the account as a retirement-oriented investment tool with the PPF’s unlimited extension facility.
Tax Benefits on PPF
Tax savings is one of the major PPF tax benefits. It offers a triple tax benefit by providing investors with an opportunity to avail tax benefits in the exempt, exempt, exempt (EEE) format. This means that the contributions made towards the PPF account up to Rs. 1.5 lakh is exempt from tax. Moreover, the interest earned on the initial investment and the maturity benefit is also tax exempted under section 80C of the Income Tax Act.
Investment Security in PPF
Investing in PPF is completely safe, given that it is backed by the government. It is one of the best risk-averse tool for savings in our country, as the returns are fixed, and there is no downside to investing in PPF.
Facility of Loans against PPF
For PPF account holders, the loan can be availed for 25% at max. Individuals who have balanced account for 2 years before putting a loan application can only avail the loan.
Under a PPF scheme, the investor is allowed to partially withdraw the money while facing financial hardships. Partial withdrawals can be made from the 5th year onwards.
PPF as a Pension Tool
PPF works well as a pension tool since the individuals earn interest tax-free. Which makes PPF a popular tool with no risk factor added. PPF benefits anyone who wishes to make investments but does not wish to take any risk with their money.
Transparency in Calculation
PPF is compounded yearly, according to when the interest rates were declared. PPF interest rate is renewed/declared quarterly. If for example, the deposit has been made before and after the change of interest, the average of both the interest rates will be considered applicable.
Small Savings with Assured Returns
This is one of the primary PPF account benefits. A person can open a PPF account with a minimum investment of Rs. 500 and can go up to Rs. 1.5 lakh in a financial year. PPF offers a lucrative rate of interest when compared to other investment options. The PPF interest rates are revised by the central government every quarter.
With a profitable interest rate, the PPF scheme provides an opportunity for individuals to grow their funds in the long term and gain significant returns.
Premature Withdrawal Facility
PPF is a long-term investment scheme. But it still has an option for a premature closing. It is meant to support investors so they can use their money in times of financial distress. However, you can make premature withdrawals after the completion of 5 years.
Risk-free returns are the highlight of this investment plan. By risk-free returns, we mean guaranteed returns. Compared to any other investment options available in the market today, PPF is one of the safest as it is backed by the government of India. The Public Provident Fund scheme can help ensure the financial security of an investor after retirement.
Features of PPF Investment
PPF was introduced in India in 1968 with the aim to mobilize small savings in the form of an investment, coupled with guaranteed returns. We can look at it as an investment vehicle that enables individuals to build a significant corpus in the long term. Before we look into PPF account benefits, let’s understand what it is and how it works.
In simple terms, PPF is a financial instrument that offers a lucrative rate of interest and returns on the initial investment. This scheme has a lock-in period of 15 years, which means that you cannot make any withdrawal before the completion of its tenure. However, one can make partial withdrawals from the 5th financial year after the account is opened.
A PPF account can be opened with a minimum investment of Rs. 500 and can go up to Rs. 1,50,000 in a financial year. An individual is allowed to put their funds in a PPF account as a lump sum, or they can choose to make regular instalments. The money can be deposited in different modes, including cheque, cash, and DD (Demand Draft). All these features together make PPF an attractive investment among people today.
What to Know Before Investing in PPF?
We have discussed the PPF account benefits, including attractive interest rates, safety, and PPF tax benefits. It is time to look at some of the things you should know before investing in a PPF scheme:
The PPF scheme has a minimum tenure of 15 years, which can be extended in blocks of 5 years. It can be done as many times as you like.
PPF requires a minimum investment of Rs. 500, and a maximum investment can go up to Rs. 1.5 lakh for each financial year. You can put your funds in a PPF scheme as a lump sum or in a maximum of 12 instalments.
After understanding PPF account benefits, you should know that the account can be opened with just Rs. 100. Annual Investments above Rs. 1.5 lakh will not earn interest and won’t be eligible for tax savings.
As per the eligibility criteria for opening a PPF account, every Indian citizen is allowed. Moreover, it is possible for parents to open an account in the name of a minor child. HUFs (Hindu Undivided Families) are not allowed to open PPF accounts under current rules.
After talking about PPF account benefits, let us understand its deposit frequency. The PPF scheme requires the investor to make at least one deposit every year for 15 years.
The PPF account holder can designate a nominee for their account. It can be done either at the time of opening the account or thereafter. PPF death benefits mean that nominee will receive all the benefits in case the account holder passes away.
Mode of Deposit:
One can make deposits into a PPF account through cash, cheque, or demand draft (DD). The investors also have the facility to make online fund transfers.
The PPF scheme is backed by the government of India. Therefore, it offers risk-free guaranteed returns along with complete capital protection. The risk factor in opening a PPF account is minimal. PPF benefits are enormous for individuals who are looking for a risk-free way to invest.
Everyone wants to receive 100% guaranteed returns on their investment, and PPF offers exactly that. Investing in PPF is better than keeping your money idle in your bank account. In this article, we have talked a lot about PPF and PPF account benefits. From guaranteed returns to tax saving options, PPF has got it all.
Choosing the right investment can make all the difference. PPF can be the right choice for you if you want to put your funds aside for a long time and need assured returns.
FAQs on PPF Account Benefits
There is no limit to the times one can extend their tenure of PPF investments.
Once your PPF account has reached its maturity (15 years), you can extend PPF for as many years.
The current rate of PPF is 7.10% (2022-23). However, you can check the current PPF rate on- www.nsiindia.gov.in.
No, it is not mandatory to withdraw the PPF balance after 15 years. You can extend the tenure in blocks of 5 years.
No. You can extend your PPF account only in the blocks of 5 years upon maturity.
There is no upper limit to the number of times one can extend their PPF account tenure. However, you can do that only after the completion of 15 years.
Investors are allowed to close their PPF account after 5 years.
The lock-in period for the PPF scheme is 15 years. However, one can make partial withdrawals after the completion of 5 years.
Opening a PPF account has been made easy for individuals. There is an option to open an account online as well as offline, depending on which is feasible for the individual.