Public Provident Fund

PPF also known as the Public Provident Fund is a savings scheme in India. Owing to its features like tax savings overall safety and returns, this scheme has garnered a lot of positive attention from the people all these years. This scheme was introduced in 1968 with the primary objective of helping the citizens to save more. This is why it offers an attractive rate of interest so that more and more people can take this scheme’s advantage.

Let’s understand a basic overview of this scheme via a table.

Interest Rate 7.1%
Tenure 15 years
Amount of Investment Minimum Rs.500 & Maximum Rs.1.5 lakh
Maturity Amount Depends on the investment tenure

Why Should You Open a PPF Account?

Needless to say, that PPF is one of the best investment tools for a regular citizen. With a PPF account in place, a person can earn more than 7% yearly returns without any kind of risk involved. The returns are fixed this is one reason why the PPF account is an excellent opportunity for those whose risk appetite is low but who want stable returns.

Here are some essential features of a PPF account that you should know about!

  • Limit of investment : From a minimum investment amount of Rs.500 you can go all the way to Rs.1.5 lakhs.

  • Total tenure of PPF : The minimum tenure of PPF is 15 years. However, if you want, you can extend it in sets of 5 years.

  • Frequency of deposit : You can make your deposits once every year for a tenure of 15 years.

  • Opening Balance : You can have an opening balance of Rs.100.

  • Nomination : You will need a nominee to open your account.

  • Mode of deposit : You can deposit money in your PPF account via cheque, cash or demand draft.

  • Risk factor : The PPF account is risk-free. Any person opening a PPF account is guaranteed risk-free yearly returns.

  • Loan against PPF : Probably not many people would know but they can also avail loan against their PPF account during the third and sixth year of contribution. However, it is important to note that you can only avail 25% of the total amount as a loan present in your PPF account.

  • The interest rate on the PPF account : The interest rate that you get on PPF is 7.1% on a yearly basis.

Are There Any Tax Benefits Related to PPF Account?

For the unversed, PPF comes under the EEE (Exempt Exempt Exempt) category. So, what does this mean? This means that the deposits that you make in Public Provident Fund will be deductible under Section 80C of the Income Tax Act. Also, the amount that you accumulate along with the interest will be exempt from tax. So, when the time comes to withdraw the interest you don’t need to pay any tax. This is good news for those who want to make a safe and secure investment.

Example :

To understand how the power of compounding works in your favor when it comes to PPF calculation, let’s consider the following table which shows the principal invested, the PPF interest earned, and the PPF maturity value for 15, 20, and 30-year tenures.

Investment Period Total PPF Investment Total Interest earned Maturity Value
15 Years Rs 1.5 Lakh Rs 1.4 Lakh Rs 2.9 Lakh
20 Years Rs 2 Lakh Rs 2.88 Lakh Rs 4.88 Lakh
30 Years Rs 3 Lakh Rs 9 Lakh Rs 12 Lakh

In this PPF calculation example, we have assumed that the annual investment amount is Rs. 10,000 and the PPF interest rate is 7.1% per annum (the current PPF interest rate for Q4 of FY 2022-23 is 7.1%).

The above example shows the power of compounding when investing in PPF – your maturity amount increases from Rs. 2.9 lakh to Rs. 12 lakh just by investing Rs. 1.5 lakh more over a 15-year period as long as you stay invested in your PPF account for 30 years instead of 15 years.

Opening a PPF Account: Eligibility Criteria & How to Open It?

If you meet the following criteria, then you can open a PPF account at your respective bank branch or at any of the post offices:

  • You should be a citizen of India
  • You won’t be able to invest in the PPF scheme if you are a HUF or NRI
  • Here’s how you can open a PPF account :

  • Submit the application form at a bank or post office
  • ID proof like your Aadhar Card or PAN Number will be required
  • You will need to submit your current address proof
  • Signature proof
  • After all the documentation work is done, you will need the amount that is required to open a PPF account

Closing a PPF Account

A PPF account can only be closed after the demise of the account holder. However, one can request to close the account by submitting the form that is duly signed by the account holder with a proper reason stated for withdrawal.

Frequently Asked Questions

  • Will I continue to earn returns if my account is inactive?
    No, the interest rate is not calculated for inactive accounts.
  • If I open a PPF account for my minor child and for myself. Can I claim tax deductions from both accounts?
    The maximum tax deduction you can claim is Rs.1.5 lakh under the 80C of the Income Tax Act.
  • Can I invest more than Rs.1.5 lakh a year in a PPF account?
    No, you cannot.
  • How is interest calculated? Last time I only got interest for 11 months instead of 12 months?
    In the case of a PPF account, the investment made on or before the 5th will be considered for interest calculations.
  • Can I open a PPF account for my grandchild?
    No, you cannot.
  • Is it mandatory to withdraw all the money from my PPF account at the end of 15 years?
    No, it is not mandatory. If you want, you can extend the account’s life for as long as you want. However, in a go, you can only extend it for 5 years.
  • Will I be receiving interest on my PPF account if I extend the maturity period even beyond 15 years?
    Yes, you will.
  • What will happen to the money in my account if I die before maturity?
    Your nominee will be able to claim the amount. They will be required to provide proof of the death of the account holder and will be subject to funds as mentioned in the nomination form by the account holder.
  • What if I deposit money in my wife’s or some other relatives' accounts? Who can avail the tax deduction?
    In this case, the person making the deposits will be able to avail the PPF tax deduction. However, you can only claim deductions for your own, your spouse or your child’s PPF account.