PPF - Public Provident Fund

Public Provident Fund or PPF is a low-risk investment option launched by the government of India in 1968.

What is PPF

The Public Provident Fund is a long-term savings and investment scheme designed to encourage small savings for investment and returns to ensure financial security among individuals. Similar to the National Saving Certificate(NSC) and Sukanya Samriddhi Yojana (SSY) the scheme is backed by the government making it a risk-free investment.

The Public Provident Fund interest rate stands at 7.1% as of quarter 3 of the financial year 2023-2024, which is compounded annually. You can start an account with a minimum amount of 500 and a maximum amount of 1.5 Lakhs p.a. The account has a maturity period of 15 years which can then be extended in increments of 5 years. Here are the details in a table format:

Importance of PPF

The Public Provident Fund is a reliable investment scheme tailored to promote financial stability, inclusion and long-term wealth planning among individuals of all walks of life. It is important as it encourages individuals belonging to a wide range of income brackets to participate in a structured savings plan. The attractive interest rate and guaranteed returns it offers serve as a secure platform to save money for an extensive period.

A PPF account also acts as a retirement fund because of its long maturity period. Helping people build a solid plan for their retirement years. Along with its many benefits, a matured Public Provident Fund (PPF) account will also provide senior citizens with a regular interest payout without any tax implications. Helping them gain a continuous income stream after retirement.

Public Provident Fund Interest Rate

The interest rate for the Public Provident Fund is determined by the Central Government for every quarter. The lowest balance at the end of the 5th of every month till the end of the month will be taken for interest calculation. Therefore it is best to make contributions towards your PPF account before the 5th of every month. Currently, the interest rate for the third quarter of the financial year 2023-2024 is 7.1%.

PPF Eligibility

The eligibility criteria for opening a Public Provident Fund account are as follows:

• All Indians who reside in the country are eligible for a PPF account
• Parents or guardians can open an account for minors.
• Non-residential Indians or NRI are not eligible to open an account. However, if they already have an existing account before becoming an NRI, then the account will continue until the maturity period. These accounts cannot be extended for 5 years as that benefit only applies to Indian residents.
• HUFs or Hindu Undivided Families are not eligible for a PPF account.

Documents Required to Open PPF Account

The documents required to open a Public Provident Fund account are:

• A PPF account opening form.
• Nomination Form or Form E.
• Proof of identity such as Aadhaar Card, Voter ID or Driving Licence.
• Address Proof such as Rental agreement or Utility Bills.
• PAN Card
• Passport size photographs

Feature of PPF Accounts

A Public Provident Fund account has specific key features for investors seeking long-term financial security. These are:

• Long-term savings: The Public Provident Fund scheme offers investors a 15-year maturity period which encourages long-term saving. The amount saved in a PPF account cannot be withdrawn until maturity. The PPF account can then be extended for 5 more years after the completion of the maturity period.
• Stable returns and security: The scheme offers competitive interest rates and since it is backed by the government, it ensures security and substantial risk-free returns.
• Tax benefits: This scheme falls under the Exempt, Exempt, Exempt (EEE) category of Tax policy which makes the interest rate and maturity amount tax-free. You can also claim tax deductions on the principal amount under Section 80C of the Income Tax Act.
• Compound Interest: The Public Provident Fund interest rate is set by the government and is compounded annually. This provides you with the potential to get higher overall returns in your investment.
• Flexible deposit amount: The deposits you make to a PPF account do not have to be a specific amount.You can contribute any amount between 500 to 1.5 Lakhs and choose to deposit through regular installments or in a lump sum. However, the maximum amount you can contribute in a year is 1.5 Lakhs. This feature allows contributors to make deposits based on their financial situations, giving them the flexibility of choice.
• Withdrawal and Loan facilities: Partial withdrawals are permitted from the 7th year onwards,providing liquidity. Allowing you to withdraw up to 50% of the available balance at once. However, withdrawal can only be done once a year.

Another interesting feature is that you can take a loan against the PPF account from the 2nd till the 6th year. You can take up to 25% of the total balance available for a tenure of 36 months. Once the first loan is paid off, you will be able to take a second one.

• Nomination facility: You can also add a nominee or nominees to the account. This helps with a smooth transition of the account if the account holder dies.
• Portability: PPF accounts can be transferred from one bank or post office to another. This makes it convenient for investors to maintain their accounts.
• Retirement planning: A Public Provident Account is often used to save money as part of a retirement plan. This is because of its long-term lock-in period and high-interest rate, making it a reliable and secure option to save and grow funds for retirement.

Banks Eligible to Open PPF Account for their Customers

Several top private and public banks are eligible to open a PPF account for their customers.Making the scheme easily accessible to a wide range of individuals from all over the country. It also makes transferring the account much more convenient. Below is a list of the top banks offering a PPF account:

Tax Benefit of Investing on PPF

The Public Provident Fund account offers several tax benefits to contributors under Section 80C of the Income Tax Act. Contributions made to the account are eligible for tax deduction, keeping in mind that the maximum amount you can deposit in a year is 1.5 Lakhs.

Moreover, the total interest and maturity amount that you get on your contribution is tax-free as it falls within the Exemption, Exemption, Exemption (EEE) tax policy. Making it an extremely attractive investment option.

How to Open PPF Account

A Public Provident Fund account opening can be done online or offline at any authorized private or public bank or a Post Office. You can open an account either by visiting the nearest branches or by visiting the website. The account opening process may differ from one bank to another, do check out the websites or visit the nearest branch for a better understanding.

Here are the steps to open a PPF account offline:

Step 1: Visit the nearest Bank or Post Office branch.

Step 2: Fill up the PPF application form and submit the KYC documents that are required.

Step 3: Make the initial deposit.

Step 4: Once the deposit is received, the applicant will get a passbook for the PPF account which will contain all the details of the account.

Here are the steps to open a PPF account online:

Step 1: Visit the website of any bank or post office.

Step 2: Open the PPF option.

Step 3: Enter the necessary details, and upload your KYC documents if necessary.

Step 4: Verify your PAN and other details.

Step 5: Enter the initial deposit amount.

Step 6: Choose whether the amount will be deducted at regular intervals or in a lump sum.

Step 7: Enter the OTP you receive on your mobile.

Step 8: After verifying your details, the account will be opened.

How to Check PPF Balance Online

Checking your PPF balance online is an easy process. Just follow the simple steps below:

Step 1: Visit your bank website.

Step 2: Log in to your PPF account.

Step 3: Your PPF account balance will be displayed on the screen.

Procedure To Withdraw PPF Balance

Although the PPF account has a locked-in period of 15 years, partial withdrawals are allowed after the 7th year onwards. However, there are certain restrictions to the withdrawal amount.

Withdrawal is only allowed once a year, with the maximum withdrawal amount being either 50% of the balance amount at the end of the 4th year( before the year in which the amount is withdrawn or at the end of the previous year, whichever is lower).

Here is the procedure for how to make a partial withdrawal:

Step 1: Get Form C and fill in the required information.

Step 2: Enter the account number, amount of money to be withdrawn, and more.

Step 3: Submit a declaration that states that no other amount has been withdrawn in the same financial year.

Step 4: If the withdrawal is being done for a minor, you will need to submit a declaration that the withdrawn amount will be used for the minor.

Step 5: Submit the passbook along with the form.

How To Close a PPF Account

Closing a Public Provident Fund account can only be done once the 15-year maturity is completed. Here is how you can withdraw the PPF amount and close the account:

Step 1: Fill up Form C with all the necessary details.

Step 2: Submit the form along with your PPF passbook at the bank branch or Post Office.

Step 3: After the application has been processed, you will receive the entire amount in your linked bank account and the account will be closed.

What is C Form

Form C is a form that is used by investors to withdraw money from their PPF account. It consists of three sections, these are:

• Section 1: In this section, you will need to enter the PPF account number and the amount of money you wish to withdraw. You will also have to state the number of years that have passed since the account has been opened. The second part of the section is a declaration of whether the withdrawal is for a minor, and that they are still a minor and alive.

Add the signature or thumbprint, enter the date, and enclose the passbook.

• Section 2: This section is for office use, and includes information for the Date of the initial subscription, the amount available in the 3PPF account, the date on which the last withdrawal was made, the amount available for withdrawal in accordance with paragraph 9(1), 9(3) of the scheme. This section also includes the withdrawal amount that has been approved
• Section 3: The last section consists of bank detail information in which the amount will be credited.

Process of Transfer of PPF Account

A Public Provident Fund account can be easily transferred from one authorised bank or Post Office to another. The process of transferring is as follows:

Step 1: Visit the bank branch or post office where you have your PPF account.

Step 2: Fill up the application form for account transfer with all the required information.

Step 3: Submit the form and it will be processed by a bank executive. They will then transfer the application along with the copy of the account, nomination form, account opening application, signature, and cheque or DD for the remaining balance of the PPF account to the new branch.

Step 4: When the new branch receives the application, you can then submit a new account opening form along with the old passbook. You can also change your nominee if you wish at this point of the process.

Step 5: The account will be transferred to the new branch once the application is processed.

Loan Against PPF Scheme

You can obtain a loan against your PPF account after the first year until before the account completes 5 years. You can be eligible for a loan amount of only 25% of the remaining balance of the second year at a tenure of 36 months. Only one loan is permitted in one financial year and a second loan can be taken only after the first has been paid off.

A loan against PPF can be taken using the application Form D in which you will have to enter information such as the account number, the loan amount required and more. You should also fill an undertaking form declaring that you will pay the amount along with interest within 3 years.

The interest of the loan shall be 1% p.a. more of the existing PPF interest rate if the loan is repaid within 36 months. However, if the loan is repaid after 36 months the interest rate shall be 6% more of the existing PPF rate. For example, if the existing interest rate for PPF is 7% then the loan interest rate will be 8%.

Moreover, the interest amount of the loan is not paid along with the principal amount. The repayment will cover the principal amount first. Once the amount is paid in full then the interest amount shall be paid within 2 months.

How To Link Aadhaar with a PPF Account Online?

Linking your Aadhaar card with a PPF account online is an easy process. Just follow the steps below:

Step 1: Visit the website of the bank which has your PPF account.

Step 2: Select ‘Registration of Aadhaar number in internet banking’.

Step 3: Enter your Aadhaar number and confirm.

Step 4: Choose your PPF account which will link with the Aadhaar.

Step 5: Check the inquiry to make sure that the link request is complete.