PPF or Public Provident Fund account is one of the most popular government-backed savings schemes in India. The PPF scheme was launched by the government to benefit small savers by offering guaranteed returns along with tax benefits.
The current PPF interest rate is 7.1% (Q4 of FY 2023-24). The minimum investment tenure or the maturity period of PPF account is 15 years. You can contribute minimum Rs 500 to maximum Rs 1.5 lakh in a financial year in the PPF account. An individual above the age of 18 years can open a PPF account either at a Post Office or with scheduled banks like State Bank of India (SBI), HDFC Bank etc.
Let’s review some features of PPF account which you might consider:
Lock-in Period: Understand the 15-year lock-in period for PPF contributions. You can only access your principal after maturity, except for specific situations like medical emergencies or child’s higher education. Early withdrawals incur penalties.
Investment Limit: There’s an annual maximum investment limit of Rs 1.5 lakh. Exceeding this limit in a year translates to no tax benefit and no interest earned on the exceeding amount.
Minimum Contribution: A minimum annual contribution of Rs 500 is mandatory to keep the account active. Failure to do so for consecutive years could lead to account dormancy and penalties for revival.
Maturity and Extensions: PPF account matures after 15 years. But investors can extend their accounts in 5-year blocks post maturity.
Returns and Tax Benefits: PPF interest rate is revised quarterly. The returns are are competitive compared to other fixed-income options. PPF is also tax-efficient. Interest earned and maturity proceeds from PPF are entirely tax-free, making it a valuable tax-saving tool. All balance that accumulates over time in a PPF account is exempted from wealth tax.
Start investing early: The longer your investment horizon, the greater the benefit of compounding interest.
Utilize the flexible contribution window: You can contribute any amount up to RS 1.5 lakh until the last day of the financial year for tax benefits for that financial year.
Loan facility: You can avail a loan between the 3rd and 6th financial year of opening the account. The loan amount is capped at 25% of the balance in your PPF account at the end of the second preceding financial year.
Also Read: Will starting to invest early help you retire early?
How to open a PPF account?
You can open a PPF account at a bank branch or a post office. Additionally, many banks are currently providing the option to open a PPF account online.
In order to open a PPF account online with a bank, you need to meet some key criteria such as:
- Having a savings account with the bank
- Access to Internet Banking
- Aadhaar Number
- Mobile number linked to Aadhaar for receiving Aadhar OTP
Public Provident Fund (PPF) is considered a safe investment option in India because it is backed by the government and has a low risk of default. The returns on PPF are also tax-free and the investment qualifies for tax benefits under Section 80C of the Income Tax Act.
However, it should be noted that the interest rate on PPF is subject to change, and that the investment has a lock-in period of 15 years. Therefore, PPF may not be the best option for those looking for short-term returns or liquidity. It is best suited for long-term investment goals.
Disclaimer : The content is for informational purpose only, not financial advice.
