In 1968, India introduced the Public Provident Fund (PPF). The goal of the PPF scheme was to help people build retirement savings while also saving on annual taxes.
For many people looking for a safe investment solution, a PPF account is something to consider.
Before you attempt to open a PPF account online, it’s important to know all of the details.
In this guide, we break down what you need to know about PPF accounts.
PPF Basics
A PPF scheme is a long-term investment solution. Its high interest rate and return on investment are two of the most beneficial aspects of this type of account.
Note that both the earned interest and returns are not taxable. Instead, you can claim returns and the amount deposited each year under section 80C deductions for tax purposes.
Current interest rate: 7/5% annum
Minimum investment amount: Rs. 500
Maximum investment amount: Rs. 1.5 lakh per year
Account Length: 15 years (renewed in blocks of 5 years)
Risk profile: Risk-free returns
Tax benefit: Claim up to Rs. 1.5 lakh under section 80C
Some details about this kind of account to keep in mind include:
- PPF scheme is backed by the government, which means the investment is not linked to the market. This means you can count on guaranteed returns.
- PPF accounts are fixed. Therefore, they are a solid diversification tool for investing.
- There are tax-saving benefits of a PPF account as detailed above.
- For those seeking a low-risk investment opportunity, PPF accounts are a solid option.
Interest Rate
The Financial Ministry determines the interest rate each year. The interest is paid on March 31st. Each month, interest is calculated on the lowest balance between the end of the 5th day and the last day of the month.
Currently, the interest rate is 7.1% pa compounded annually.
NPS vs PPF
The PPF is a government-backed savings option, whereas the National Pension System (NPS) is a market-linked pension savings option. While both are backed by the Indian government, NPS returns depend on the market and pension fund managers. On the other hand, PPF returns are fixed by the government each quarter.
Here’s a breakdown of the differences:
- Maturity: 15 years for PPF, after age 60 for NPS.
- Interest: 7.1% (Q2 in 2022-23) for PPF, 12-14% for NPS.
- Investment: Rs. 500 minimum and Rs. 1.5 Lakh for PPF, Rs. 6000 for NPS.
- Tax-free investment: up to 1.5 Lakh for both.
- Partial withdrawal: Partial withdrawals after 7 years of maturity for PPF, up to 20% before retirement for NPS.
- Safety: High for PPF, low for NPS.
- Returns: Moderate for PPF, High potential for NPS.
- Liquidity: Low for both.
- Taxation: Fully exempt for PPF, 40% tax-free for NPS.
Which is the better option overall?
It depends on your investment goals and risk profile. Since NPS does not provide a fixed-return, it is not as “safe” as PPF. However, it is still regulated by the Pension Fund Regulatory and Development Authority. Both may be used for retirement, but PPF accounts can also be used to save for other things.
The good news is that you don’t have to choose between NPS vs PPF. You can invest in both to diversify your investment portfolio.
Eligibility Requirements
You must meet the following criteria to invest in the PPF:
- Indian citizenship.
- Limited to one account, unless the second account is assigned to a minor.
- You must not be in HUF or NRI.
Tax Benefits
The PPF investment falls under the EEE, or exempt-exempt-exempt tax category. This means that all deposits made to the account are deductible via section 80C of the Income Tax Act. keep in mind that the maximum contribution is Rs. 1.5 Lakh per financial year.
Additionally, the interest you earn is also exempt from tax when withdrawn. You can make partial withdrawals after seven years.
How to Open a PPF Account
You cannot open a PPF account online. Instead, you can open the PPF account in
the post office or at a nationalised bank. Some private banks may be authorised to open an account as well.
To open an account, you must provide the following documents:
- The completed account application form.
- KYC documents including your driver’s license, voting ID, or Aadhaar card.
- Proof of address.
- A small photo, the same size as the one in your passport.
- Nominee declaration form.
- Signature proof.
After submitting all of the documents above, you can deposit the account opening amount.
Checking Account Statement Online
While you cannot open a PPF account online, you can check your statement online. Here’s how to do this:
- You must link your PPF account with your existing savings account.
- Additionally, make sure you have internet or mobile banking activated.
- Use your bank credentials to log in to your account online.
- After completing the PPF login, you should be able to view your account details, statements, balance, etc. You can also transfer funds from your savings account to PPF account this way, and check early withdrawal eligibility.
PPF Withdrawal Rules
When the account matures by reaching 15 years of tenure, you can withdraw the money from it. At the time of account maturity, you can withdraw all of the funds or part of the funds.
Partial withdrawal is also available beginning at seven years of account maturity. However, there are considerations for partial withdrawal. You may only execute one partial withdrawal every financial year.
To withdraw the money from your PPF account, you must submit Form C at the location where you opened the account. This is required for both partial and full withdrawal.
Here’s a step-by-step guide to the process:
- Download the PPF withdrawal form, Form C, from your bank or retrieve a copy in person.
- In the declaration section, you must provide your PPF account number and dictate how much you want to withdraw. You must also indicate how long the account has been active.
- The bank must complete the office-use section.
- Sign the form in the third section.
- Include your PPF passbook with the application form. Apply a revenue stamp and signature.
- When the amount is approved, it will be credited directly to your savings account.
Conclusion
A PPF account is a safe, government-backed investment option. Each Indian citizen can open one account in their name, and a parent can open an account for any of their children. Compared to other options, this type of account is low-risk and provides a moderate earning potential. The tax benefits are another key reason to consider investing in this type of account.
PPF Scheme: FAQs
This type of account is one of the safest investment options available because it’s backed by the Indian government. The government sets the interest rate each quarter, and allows you to exempt investment tax and returns.
You must invest at least Rs. 500. The maximum you can contribute is Rs. 150,000 per financial year.
The government sets the interest rate each year for the account. Right now, the interest rate is 7.1%.
The interest rate is based on the lowest value in the account between the 5th and last day of the month. For example, if you have Rs.1 lakh in the beginning of the month and then invest Rs. 30,000 on the 15th of the month, the interest for that month is based on Rs. 1 lakh.
The minimum tenure is 15 years, and you can extend it in 5-year increments.
Each Indian citizen can only open one account for themselves. However, they can also open one account for each minor they have guardianship over.
No, a minor cannot open their own account. However, one guardian can open an account for them
No, each individual can have their own account. No joint accounts are permitted.
No, you do not have to redeem all of the funds in your account when it matures. You can continue the account for 5-year terms as many times as you want.
No, at this time you cannot withdraw from a PPF account online. You must visit the bank in person to submit your withdrawal request. You can only check the eligible withdrawal amount online, and then you must complete the process at the bank.
You may assign a nominee to be the legal heir of your account. The nominee receives all of the account funds if the account holder passes away.
Yes, you can close an account before maturity in some cases. If the account holder becomes unable to make sound decisions, the account can be closed by their guardian. Life-threatening illness, higher education for the account-holder or their children, a change in residency of the account holder (non-Indian resident).
Also Read: Investment Tips for Beginners
