Public Provident Fund (PPF) was launched in India in 1968 by the central government of India. Even after so many years, PPF account is one of the favorite investment avenues for investors.
PPF account is one of the most efficient investment options for any individual because of the safety of investment and guaranteed returns.
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In this article let us explore various aspects of PPF accounts:
The aim of this scheme is to mobilize small savings as investments which also return (Interest) on investment for the investor. Both the amount invested and interest earned on the scheme are guaranteed by the Govt. Thus for anybody looking for safe and definite investment PPF account is a very good option.
(1) What is a PPF account
Public Provident Fund (PPF) account is a long term savings cum investment scheme that offers an attractive rate of interest on the amount invested. The safety of principal amount and rate of interest is guaranteed by the Govt. of India.
(2) What is the rate of Interest on PPF account
Rate of interest on the amount invested in the PPF account is decided by Govt. on a quarterly basis. The normal rate of interest ranges from 7.50% to 9.00%. The interest is compounded annually and is paid in the month of March every year. The interest is calculated on the lowest balance between the close of the fifth day and the last day of every month. Therefore it is advisable to make contributions to PPF account before the fifth of every month to maximize returns.
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(3) What is the deposit limit of PPF account
PPF account can be opened with minimum of Rs 100/- However to keep the account active minimum contribution of Rs. 500/- is required to be made every financial year. The maximum amount that can be invested in a PPF account in a financial year if Rs. 1.50 lakhs. There can be a maximum of 12 contributions in PPF account in a financial year.
(4) What is the tenure of the PPF account
The maturity time of the PPF account is a minimum of 15 years? If any individual wishes to extend the time limit of the PPF account that is permitted in blocks of five years. During the extended time period, there will be no compulsion of minimum contribution and on withdrawals. PPF account cannot be closed prematurely.
(5) What is the lock-in period in the PPF account
As stated PPF account has a maturity period of 15 years? On completion of 15 years period entire amount payable along with interest is paid to the investor unless there is a request for an extension.
However partial withdrawal is permitted from the account from the 7 year.i.e after completion of 6th year. The amount that can be withdrawn partially is 50% of the amount available in the account at the close of 4th year (Or the preceding year in which is amount is withdrawn). Only 1 withdrawal is permitted in a Financial Year.
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(6) Can loan against PPF account be availed
One can avail loan against a PPF account from the third year to the sixth year. The amount of loan will be the maximum of 25% of the balance in the account at the end of the 2nd immediately preceding year. The loan is to be repaid in 24 months’ time and the rate of interest on the loan will be 2 percent above the prevailing rate of interest on PPF deposit.
(7) What are the tax benefits of PPF account
One of the most attractive features of a PPF account is its tax treatment. The entire amount deposited in the PPF account in any financial year is exempted from the income tax calculation under section 80(C) of the income tax. It is the only investment option where the interest earned on the investment is also tax-free. Moreover, the maturity amount of PPF is also tax-free in the hands of investors. All these features make the PPF account one of the most lucrative investment options.
(8) Who can open PPF account
Any resident individual aged above 18 years can open a PPF account in his name. Only one account is permitted to be opened by an individual. PPF account for the minor can be opened on behalf of the minor by either father or mother or legal guardian. There cannot be more than one PPF account in the name of any individual. On the death of the account holder amount lying in the PPF account transferred to the nominee or legal heirs.
(9) Where to open the PPF account
The PPF account can be opened with the post office or commercial banks. A duly filled account opening form along with required KYC documents are to be submitted for opening this account.
Summary
PPF account (Public Provident Fund) is one of the most efficient investment options for any individual because of the safety of investment and guaranteed returns. The effective rate of return from the PPF account is also quite high as interest is totally exempted from Tax.
