What is PPF Investment Scheme | Public Provident Fund | 1 Best Guaranteed Returns

Hello Friends, Welcome to my Blog Investinfy.com the best financial blogs where you will be able to read about the end to end information on many investment schemes and financial topics. In this Blog post we will be focusing on PPF.

Generally when we want to invest money on any investment scheme , we always asks our friends and relatives that where we can invest ? and they suggests the investment schemes which they like most. Then we invest as per their suggestions, that is good as we consider them as our well wisher , But here I want to mention one thing, if we know end to end information of each investment schemes at least it will help us to understand if that investment scheme is good for us or not.

Hence it is better to have a complete idea about each investment scheme where we invest. Therefor this blog will help you to know end to end information of many Indian investment schemes available right Infront of you.

In this blog post I will be explaining my analysis on PPF Investment scheme. This will be a complete guide on PPF investment scheme. Please read till end of the blog post to know the complete information about this PPF investment scheme. Lets get started.

What is PPF ?

PPF stands for Public Provident Fund. PPF is Saving Scheme which has been established by Government of India. It is a safe and tax deductible investment scheme with very attractive returns that are fully exempted from income tax. It is long term saving scheme.

Features

Safe Investment option
Guaranteed returns
Backed by Central Government
Attractive Tax Benefits
Long term Saving Scheme
Account cant be attached to any claim in case of debt or liability. so the money is completely yours.

Eligibility

An Individual who is a resident of India can open a PPF account to himself .
Also , he/she can open another PPF account on behalf of a minor child or a person of unsound mind of whom he/she is guardian
Minor will operate the account himself when he or she becomes major.
Any Individual can have only one PPF account under his name either in Post Office or Bank.
Individuals having General provident fund or employee provident fund can also open a PPF account.

Where Can you Open PPF ?

State Bank of India or its Associates
Post office
Any Nationalised Banks
Some private sector banks

Deposit Limit

Minimum deposit required per financial year is Rs. 500
Maximum Deposit Allowed per financial year is Rs. 150000
Deposit amount should be in multiplies of Rs. 50
Deposit can be made in one lump sum or in instalments in a financial year
There is no limit on the number of instalments in a month or in a financial year.

Best time to deposit the money

With PPF , the financial year 1st April to 31st March concept of deposit.
Amount deposited at the beginning of the financial year earns more interest than the amount deposited towards the end of the financial year.
If you are planning to deposit yearly, then 1st to 5th of April.
if you are planning to to deposit monthly then 1st to 5th of every month.
If you are planning to deposit quarterly, then 1st to 5th of April, July, October and January
If you are planning to deposit half yearly , then 1st to 5th of April and October.

In-Active PPF Accounts

PPF account will become in-active if you don’t deposit the minimum amount during any financial year.
You can re-activate the same by paying a penalty of Rs. 50 for each financial year of default and minimum deposit amount of Rs. 500 for each financial year of default.
Even if you don’t re-activate the account, the inactive account will continue to earn the interest as per the interest rate applicable to the scheme from time to time till the maturity.
If the accounts become in-active , then you are not allowed to open another PPF account till you close the inactive account after the maturity period.

PPF Interest Rate

The current interest rate is 7.10%.
Annual Interest rate is not fixed and it is determined by the Central Government from time to time.
From 01-Apr-2016 onwards, interest rate for this scheme has been announced by the government on a quarterly basis. This used to be on a yearly basis earlier.

Compounding Frequency

PPF Account compounds annually. Interest earned every month during the financial year will be credited to the account at the end of the financial year that is on 31st March.

Loan Facility

Loan facility is available from 3rd financial year to 6th financial year of opening the account.
You are eligible for loan if your account is active. Inactive accounts won’t qualify for the loan.
The eligible loan amount is 25% of the account balance at the end of the 2nd financial year immediately preceding the year in which the loan is applied for.
The loan principle amount should be re-paid within 3 years from the first day of the month following the month in which the loan is sanctioned.
The repayment of principle amount can be be made in one lump sum or in a maximum of 36 months.
Once the principle amount is fully repaid the loan interest need to be repaid within 2 monthly installments.
The interest rate will be at the rate of 1% per annum above the applicable PPF interest rate from the 1st day of the month following the loan sanctioned to the last day of the month of last installment.
If the loan principle is partly paid or not paid within the 3 years time, the outstanding loan principle amount will be charged at 6% per annum above the applicable PPF interest rate from the 1st day of the month following the loan sanctioned to the last day of the month in which the loan is finally repaid.
You are not eligible for another loan when you already have a loan and it is not fully repaid.
You are eligible for only one loan in a financial year even if you have already repaid your existing loan.

PPF Withdrawals

Partial Withdrawals is allowed from 7th financial year of the opening the account .
Only one withdrawal is allowed per financial year.
You are eligible for withdrawal if your account is active. Inactive accounts won’t qualify for withdrawal.
Withdrawal limit is 50% of the account balance.
If you had availed any loan , then the unpaid loan amount will be deducted from the withdrawal amount.
Any amount is withdrawn is not repayable.

Procedure for PPF withdrawal

Step 1: Fill in the application form using Form C with relevant information.
Step2: Submit the application to the concerned branch of the bank where your PPF account lies. This form is available for download here.

PPF Income tax benefits

PPF is one investment vehicle that falls under the Exempt-Exempt-Exempt (EEE) category. This, in other words, means that all deposits made in the PPF are deductible under Section 80C of the Income Tax Act. However, it should be noted that the maximum contribution in PPF cannot exceed Rs.1.5 lakh in one financial year.
Furthermore, the accumulated amount and interest is also exempt from tax at the time of withdrawal. It is important to note that a PPF account cannot be closed before maturity.
A PPF account, however, can be transferred from one point of designation to another. But, do remember that a PPF account cannot be closed prematurely. Only in the case of the account holder’s demise can the nominee’s file for the closure of the account or some genuine critical situation. please check premature closure section for more details.

NRI PPF Account

NRI (Non Resident Indian ) are not eligible to open a new public provident fund account.
But , If a resident having public provident fund becomes NRI, then he can choose one of the following two approach.

He/she can continue the account till maturity on a non-repatriation basis. no extension is allowed after maturity.
He/she can pre-maturely close the account subject to certain condition please check premature closure section for more details.

Extension Without Deposits

The account holder can continue to withdraw every financial year.
One withdrawal is allowed per financial year.
There is no limit on the withdrawal amount.
The amount remaining in the account will continue to earn interest (At the PPF interest rate till it is fully withdrawn) .
Once you choose to extend without deposits , you can’t change the account to with deposits.

Extension With Deposits

The extension period can be for a block of 5 financial years. There is no limit on the number of blocks.
The deposit limits during the extension are same as that of the PPF account.
During the extended period, one withdrawal is allowed per financial year.
The total withdrawal limit during the extended 5 year block should not exceed 60% of the account balance at the start of the extension period.

Premature Closure of PPF account

You can close public provident fund account before maturity. But this will be allowed in the following genuine situations.

Medical treatment of life threating disease to you, your spouse, dependent children or parents.
Yours and your dependent children higher education.
If you become NRI.

The premature closure is allowed from the 7th financial year of account opening.
There is a penalty for premature closure of PPF account. If you close the account prematurely then the interest will be calculated at 1% lesser than the interest rate applicable to the scheme from time to time since the date of account opening.
For example if the interest rate for a quarter is 8.5% the you will earn interest for 7.5% only for that quarter.

Nomination

Nomination facility is available under public provident fund scheme . The account holder can nominate one or more persons to receive the amount standing to his credit in the event of his death.
Nomination cant be made on the account opened on behalf of minor.
The account holder cant nominate a trust as his nominee .
A nomination made by the account holder can be cancelled or changed by a fresh nomination.
If the nominee is minor, then the account holder can appoint any person to receive the amount in the event of his death during the minority of the nominee.
If the nomination is not in force at the time of death of the account holder, then the amount standing to his credit can be paid to the legal heirs of the deceased.

PPF Account transfer

PPF account can be transferred from

One bank to another bank.
One post office to another post office.
One bank to another post office and vice versa.

PPF account can not be transferred from one person to another person.

PPF Maturity Amount projection Table

Let us take an example of a monthly public provident fund investment and see how much maturity amount we are getting after the maturity.

Monthly Amount	Period in years	Interest Rate	Total Deposit in Rs.	Total Interest earned in Rs.	Maturity Amount in Rs.( Total deposit + Interest Earned )
1000	15	7.1%	1,80,000	1,35,568	3,15,568
2000	15	7.1%	3,60,000	2,71,136	6,31,136
3000	15	7.1%	5,40,000	4,06,704	9,46,704
4000	15	7.1%	7,20,000	5,42,272	12,62,272
5000	15	7.1%	9,00,000	6,77,840	15,77,840
6000	15	7.1%	10,80,000	8,13,408	18,93,408
7000	15	7.1%	12,60,000	9,48,976	22,08,976
8000	15	7.1%	14,40,000	10,84,544	25,24,544
9000	15	7.1%	16,20,000	12,20,112	28,40,112
10000	15	7.1%	18,00,000	13,55,680	3155680
11000	15	7.1%	19,80,000	14,91,248	34,71,248
12000	15	7.1%	21,60,000	16,26,816	37,86,816
12500	15	7.1%	22,50,000	16,94,600	39,44,600

PPF Maturity Amount projection Table

FAQ about PPF saving scheme

Which is the best bank for a PPF account?

PPF accounts are offered by the Government of India and are not specific to a bank. Also, all banks provide the same set of features and benefits when you open a PPF account. The interest rate is set by the government and it remains the same wherever the PPF account is held. Therefore, there is no best bank that offers a PPF account.

What is the minimum lock-in period for a PPF account?

The minimum lock-in period for a PPF account is 15 years, the actual tenure of the PPF account.

Is it mandatory to withdraw the PPF account balance at the end of the 15 years?

It is not mandatory . You can let the money stay in the account so that it accrues interest as long as you close the account.

Can I extend the tenure of the account for 3 years since I may need the sum then?

You can only extend the account tenure in the blocks of five years upon maturity.

How many times am I allowed to extend the tenure in the blocks of five years?

There is no upper limit on the number of times you can extend the tenure of the account as long as you extend it in the blocks of five years. However, you can only extend the tenure upon the maturity of each block.

For Further Reading of this Blog. Please check out the below articles.

To know more about PPF and its calculator please read here

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