Public Provident Fund (PPF): Interest Rate, Features & Benefits

Public Provident Fund (PPF)

A Public Provident Fund (PPF) is a scheme that was launched by the Government of India in 1968 with the intention to mobilize small savings by offering an investment that will provide stable returns. PPF is a popular scheme among investors who wants to earn high but reasonable returns. Additionally, a PPF account provides attractive interest rates and you do not need to pay any tax on the returns generated from the interest rates.

Features of a PPF Account

  • Tenure: The minimum tenure of a PPF account is 15 years. However, the account holders can extend the duration of his/her account by a block of 5 years.
  • Opening balance: The minimum amount required to open a PPF account is 100 rupees. If the annual investment is more than Rs 1.5 lakh, then it will neither earn interest nor it will be eligible for tax saving.
  • Investment limits: A PPF account allows a minimum investment of Rs 500 and a maximum investment of Rs 1.5 lakh for each financial year. PPF investments can be paid in a lump sum or installments (maximum 12 installments).
  • Nomination: The account holder can appoint a nominee for his/her PPF account at the time of opening the account or sometime later.
  • Frequency of deposits: Deposits into a PPF account can be made at least once a year for 15 years.
  • Mode of Deposit: The deposit into a PPF account can be made through PF transfer online, Demand Draft, cheque, or cash.
  • Loans against a PPF account: Loans can be availed against PPF account between the 3rd and 5th financial year. The maximum loan amount that can be availed is 25% of the investments that have been made at the end of the 2nd financial year. Additionally, a second loan can be taken before the 6th financial year if the first loan is fully repaid.
  • PPF account risk factor: Since PPF is a government-backed scheme, it offers risk-free, guaranteed returns, as well as capital protection. Hence, the risk involved in holding a PPF account is minimal.

Benefits of a PPF Account

  • Since Public Provident Fund/PPF is a government-backed scheme, the principal and interest amounts in your PPF account are guaranteed and secure
  • PPF can serve as a good Pension scheme if the account extends the scheme tenure without opting for further contributions.
  • Contributions made to the PPF account of up to Rs 1.5 lakh per annum as well as interest earned on the savings are tax-free
  • The scheme has a term of 15 years but it can be extended for another five years

How to open a PPF Account?

You can open a PPF account either in a Post Office or in any nationalized banks such as the State Bank of India, Bank of Baroda, and so on. Even in several private banks like HDFC, Axis, and ICICI Bank you can open a PPF account online via net banking. After you open the account, a passbook will be issued that will have all information related to transactions like subscriptions, interest, withdrawals, and so on. However, some banks might also allow you to view PPF entries online instead of issuing a passbook.

Eligibility to Open a PPF Account

  • Only Indian citizens are eligible to open a PPF account
  • Non-resident Indians are not eligible to open PPF accounts. However, if a resident Indian has become an NRI after opening a PPF account, he/she can continue with the account until maturity
  • An individual can open only one account under his/her name. Joint accounts and multiple accounts cannot be opened
  • Parents/Guardians can open PPF accounts for their minor children

Documents Required to Open a PPF Account

  • PPF account opening form that you will get from any specified bank branch or you can also download it online
  • Valid ID proof such as Aadhaar Card/Pan Card/Passport
  • Address proof which states the current address of your residence
  • Passport-sized photograph of the account holder
  • Form for nominee declaration

PPF Account Opening Form

PPF Form A/Account Opening Form is used to open a PPF account. This form requires:

  • Account holder’s Name
  • Address of the account holder
  • Cheque of the account holder’s registered bank account along with initial deposit amount

If you are opening an account for a minor, then you’re required to mention:

  • Name of the minor
  • His/her date of birth
  • Your relationship with the minor
  • A declaration stating that you do not have any other PPF account except that of the minor

How to Open a PPF Account Online?

Some banks only allow you to open a PPF account online. To open a PPF account online, follow the steps below:

  • Log in to the net banking portal where you want to open your PPF account
  • Click on the button ‘Open a PPF Account’
  • Choose between a ‘self account’ and a ‘minor account’
  • Enter the basic information like nominee details, bank details, and so on
  • Verify details like your PAN Card Number/Aadhaar Card Number
  • Now, enter the amount that you wish to deposit in your PPF account
  • You will be asked to set up instructions that will allow the bank to deduct the amount at fixed intervals or in a lump sum
  • After setting up instructions, you will receive an OTP on your registered mobile number
  • Once your number is verified, your PPF account will get opened. You must save the account number shown on the screen for future reference
  • Certain banks might ask you to submit the hard copy of the details you’ve entered along with the reference number and KYC details

Top 10 Banks Where you Can Open your PPF Account

  • State Bank of India
  • Bank of Baroda
  • ICICI Bank
  • Axis Bank
  • Punjab National Bank
  • Central Bank of India
  • IDBI Bank
  • Canara Bank
  • Vijaya Bank
  • Union Bank of India

How to Check PPF Balance Online?

  • Log in to your PPF account using your net banking credentials
  • After you log in, your current PPF account balance will be shown on the screen

Logging in to your PPF account using internet banking will also permit you to transfer funds to your PPF account online, download your PPF account statement, submit your PPF loan application, and more.

Public Provident Fund Interest Rate

PPF interest rate is set by the Finance Ministry every quarter which is paid on 31st March. The interest rate on PPF is calculated monthly on the basis of the minimum balance available between the close of the 5th day and the last day of every month.

Let’s take a look at the recent changes in PPF interest rates.

Time Period Interest Rate
From 1st July 2020 7.10%
1st April 2020 – 30th June 2020 7.10%
1st January 2020 – 31st March 2020 7.90%
1st October 2019 – 31st December 2019 7.90%
1st July 2019 – 30th September 2019 7.90%
1st April 2019 – 30th June 2019 8.00%
1st January 2019 – 31st March 2019 8.00%

PPF Tax Benefits

PPF investments fall under the Exempt-Exempt-Exempt (EEE) category. This means that deposits made to a PPF account are eligible for deduction under section 80C of Income Tax Act. Moreover, the amount that has been saved and the interest accrued on PPF investment is also exempted from tax at the time of withdrawal.

PPF Withdrawal Rules

An individual can close his/her PPF account when the maturity period is over, that is after 15 years. Once the 15 years are completed, the PPF account holder can withdraw the entire amount standing to his/her credit as well as interest accrued on PPF investment.

However, the PPF scheme allows partial withdrawals after the account holder completes 6 years and is in dire need of funds. He/she can withdraw prematurely a maximum of 50% of the funds that are available in the account at the end of the fourth year (either at the end of the preceding year or the year before which the amount is withdrawn). Also, keep in mind that only one partial withdrawal is allowed per financial year.

PPF Withdrawal Process

In case you want to withdraw some amount from your PPF account, you can so by submitting Form C to the concerned post office or a bank branch where you have your account.

Form C has three sections that are stated below:

  • Declaration section: Under this section, you have to give your account number and the amount you want to withdraw from your PPF account. Also, an additional declaration stating that you have not withdrawn any amount during the same financial year has to be submitted.
  • Office use section contains details like the date when the PPF account was opened, total balance available in your account, the date on which the last withdrawal was permitted, and so on.
  • Bank/Post Office details section will ask for the bank/post office details and whether the money should be credited directly or a demand draft will be issued.

Note: It is compulsory to enclose a copy of the passbook along with this application form.

How to close the PPF account?

You can opt to close your PPF account prematurely once you’ve completed 5 financial years. Premature closure is permitted only on the following grounds:

  • In case the spouse, children, or parents of the account holder are suffering from serious ailments or require treatment for life-threatening diseases.
  • Higher education of the account holder or his/her children. However, documents confirming the admission at the university or college must be submitted.

How to revive an inactive PPF account?

A PPF account becomes inactive if the minimum contribution of Rs 500 is not made every year.

  • Submit a written request to reactivate at the post office or the bank branch where your account is based
  • A fine of 50 rupees has to be paid for each year the account was inactive
  • You also need to pay the arrears of a minimum amount of 500 rupees for all the years your account was inactive

Conclusion

One should undertake the public provident fund scheme if they want to diversify their financial and investment portfolio. Since PPF is a government scheme, it is backed up with guaranteed returns to protect the financial needs and provide financial savings of the people in India.

FAQs on Public Provident Fund (PPF)

Q: What is a PPF passbook?

A: PPF Passbook provides all the details of the investments you’ve made in your PPF account.
Q: Can I transfer my PPF account?

A: Yes. You can transfer your PPF account from the bank to the post office or vice versa. The account can also be transferred between different branches of the same bank.
Q: Do I need to withdraw all the money from my PPF account once it matures?

A: No, it is not compulsory. You can extend your account term if you wish to continue with it. You can do so by either depositing fresh funds or without making any deposits. The account term can be extended for 5 years.
Q: What happens to the money in the PPF account if the account holder dies before the maturity period?

A: The money can be claimed by the nominees or the legal heirs. The nominee will receive the overall amount held in the PPF account if he/she was named by the account holder. However, if the account holder has named more than one nominee, then they will receive the cash held in the account proportionately.
Q: Can I earn returns on my PPF account if it is inactive?

A: No. Interest on your PPF account will not be calculated for inactive years. When you revive your account again, interest will be calculated on the balance held at the time of revival.
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Nirupama Verma is a self passionate blogger, managing a bunch of informational blogs. She has written a lot of informational content for several popular blogs.

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