All you wanted to know about PPF (Public Provident Fund)

What is PPF (Public Provident Fund)?
PPF is one of the most popular modes of investment in India, which is backed by government and work as a long term saving instrument. This is very useful for those investors who are either self-employed or working in company/ small organization, which does not have GPF or EPF (provident fund); in that case it serves as the best tax free long term investment option.

What are the returns on PPF?
Interest rates on PPF are notified every year by the government and currently it is 8.70% p.a. for the financial year 2015-16. The interest calculation is done on a monthly basis but actual credit happens only at the year-end. The best part of PPF returns is that it is tax-free on maturity and you also get tax benefit under section 80C for the investments you make in PPF every year.

How it is different from GPF or EPF?
Many of us who are working with professionally managed companies, must be aware of General Provident fund (GPF) or Employee Provident Fund (EPF). Employer and employee equally contribute to these funds, the return of investment is interest earnings and the total amount invested by an individual gets tax exemption under 80C.

The option to increase the employee contribution is also available; you can withdraw your PF based on a pre-defined upper limits and it is allowed for some specific purpose only. If you switch your job or you quit, then you can withdraw the PF or transfer with your new employer. It is also taxable if a criterion of continuous service for five years is not fulfilled apart from certain other conditions. Returns on PF are also similar to PPF and you can always opt for the PPF scheme to deliver similar purpose of investment and saving; let’s understand more on PPF as follows:

Salient Features of PPF:
• It is very easy to open &maintain PPF account; Several banks are authorized to facilitate PPF account facility, it is also available with Indian post. Some banks, even offer online opening of the PPF account through net banking or you can walk down to any nearest branch of the authorized banks.
• Long term saving and a Maturity period of 15 years makes PPF investment a wonderful tool for your retirement planning.
• This is totally a secured government backed investment, no risk involved.
• PPF returns are tax-free.
• You get Tax exemption for your investment amount under 80C.
• Funds in PPF account can’t be attached by any court orders
• Initial contribution for opening PPF account is as low as Rs. 100/-.
• Annual deposit limit for investment is min Rs 500/- and max Rs 150,000/-
• PPF account is transferable.
• Change in name is also allowed (for e.g. if a women’s name post marriage gets changed and if she wish to change the same for her PPF account; then it is allowed)

Eligibility criteria to open PPF account:
• Any individual can open a PPF account except NRI and HUF.
• “One individual-One PPF account”, you can open only one such account in your own name.
• PPF account can be open for minors by their parents or guardian (tax exemption benefit is still available subject to a maximum limit allowed).
• Nomination facility is allowed, except for minor account.
• Even if you have GPF or EPF account, you are allowed to open a PPF account in your name.

What is the maturity period & withdrawal options available in PPF account?
The maturity period for the account is about 15 years and on maturity you can have the following three options:

1. Withdraw your accumulated money in PPF account and close it; Or
2. You may even extend your PPF account for another 5 years without paying any further contribution: Or
3. You may extend it for another 5 years with regular contribution.

Can I have a Partial withdrawal facility in between the lock in period of 15 years?
Though the maturity period for PPF account is 15 years as seen above, but partial withdrawal is allowed form 7th year onwards subject to the prescribed specified limit.

Loan against PPF: Yes, loan against your PPF account is also allowed and the same can be availed during a specific period.

Should you invest in PPF?
Yes, Undoubtedly because PPF comes across as one of the best & simplest investment tool to serve your long term financial needs and to top it all; its returns are completely tax free and offers you tax savings u/s 80C as well. One should invest in it though small or big but consistently. Ideally every fresher or a new joinee should open a PPF account right when they start working and as a parent also you should open PPF accounts in your children’s name so that once they attain majority they continue it and enjoy the free from lock in PPF account.

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