Public Provident Fund: Eligibility, Benefits & Features

The PPF continues to be one of the most trusted investment vehicles for middle-class India. One of the reasons for its continued popularity since its inception in 1968 is that it is a government-backed scheme and a relatively stable investment. 

Hence, if you are looking to start investing in a PPF account, you will be eager to know all the details regarding this instrument. Here we have collected and presented every answer to questions that a person is likely to face before investing in a PPF account.

Firstly, PPF stands for Public Provident Fund, and it is an investment vehicle. It was first offered by the National Savings Institute in 1968. The PPF is unique and you can invest in it to earn hefty returns and save money. 

The PPF is also called a "savings-cum-tax savings" investment. You do not pay tax on the money that you invest in a PPF. Neither do you have to pay tax on the interest that it earns. 

Here's how this investment vehicle works. A PPF account is like a subscription. You have to deposit an amount in multiples of fifty, starting with a minimum amount of Rs. 500 to a maximum of Rs. 1,50,000 in a year. This investment cycle continues for 15 years, and you can invest in it further by extending it for five years.

Before you decide to start a long-term commitment with PPF, take a look at some of the features of PPF.

• Every person can have only one PPF account. Multiple PPF accounts are not allowed.
• A guardian or a parent can start a PPF account for a minor under their care.
• You cannot have any joint accounts under the PPF scheme.
• A person has to deposit amounts in multiples of fifty in a year, with a starting amount of Rs. 500 and a maximum amount of Rs. 1,50,000.
• You can make these deposits in a lump sum or installments.
• An account stands discontinued if a person fails to deposit the minimum amount in a year.
• You cannot open another PPF account if you have a discontinued account.
• You can transfer money to the PPF account by cash, cheque, DD, or online fund transfer.
• You can designate a nominee at the time of opening the account.
• The interest earned by the PPF account is set by the Finance Ministry each year. At present, in 2021, it is fixed at the rate of 7.1%.
• PPF interest is calculated monthly on the lowest amount deposited. This calculation takes place after the fifth of every month.
• Hence PPF subscribers are advised to deposit their cash after the fifth of each month.
• The interest is credited to the account at the end of the financial year rather than monthly.

These were some of the major and most striking features of the PPF account.

Why should a person invest in a PPF account? Here are some of the major PPF benefits that a person can enjoy when investing in PPF.

Tax benefits

The most popular reason for choosing a PPF account is the vast tax benefit that you get. The principal amount is exempt from taxation, provided that you do not exceed the Rs.1.5 lakhs limit. Laws that govern this are set out under Section 80C of the Income Tax Act. When the amount is redeemed after maturity, it is still not subject to taxation. Hence, you can invest yearly a sum of up to Rs.1.5 lakhs completely tax-free.

Stable and secure returns

Since PPFs are government-backed schemes, they are stable investments holding a lot of surety and safety for risk-averse investors. You can easily build a retirement corpus for yourself with this instrument as it is a government-guaranteed scheme.

Long-term lock-in period

A PPF account requires commitment from an investor for fifteen years. Hence you can easily use the money to plan your children's higher education or retirement plans. Even after the 15-year lock-in period, you can continue the investment by extending it for five years at a time.

Partial withdrawals

While you can make partial withdrawals from the PPF account, you can only do so after the fifth year. The amount you can withdraw is equal to 50% of the account balance at the end of the preceding year.

Loans against the PPF

Individuals can acquire a loan against their PPF account between the third and sixth year of opening a PPF account. Borrowers will have to repay the loan amount within three years from the date of disbursement. 

These were some of the significant benefits of investing in a PPF account.

Now that you have understood why you should invest in a PPF account, it's time to understand what makes your PPF eligibility certain. Here are some criteria for opening a PPF account.

• There is no PPF eligibility age. Minors or persons with an unsound mind can have their PPF accounts provided that a guardian makes it for them.
• Any Indian citizen can have only one PPF account. 
• There can be no joint accounts.
• NRIs and HUFs are not allowed to open a PPF account.

You can open a PPF account from a nationalised bank or a post office. Here is a list of banks where you can open a PPF account.

• Indian Overseas Bank
• Axis Bank
• State Bank of India
• IDBI Bank
• ICICI Bank
• Bank of Baroda
• HDFC Bank
• Corporation Bank
• Oriental Bank of Commerce
• Bank of India
• Allahabad Bank
• Central Bank of India
• Canara Bank
• Union Bank of India
• Indian Bank 
• United Bank of India
• Bank of Maharashtra
• Punjab National Bank
• Dena Bank
• Vijaya Bank

Arrive at any of these banks and open a PPF account today!

How to open a PPF account offline

The procedure for opening a PPF account offline is quite simple. Here are the steps to open a PPF account.

• Step 1: Get an application from the nearest bank branch above or a post office.
• Step 2: Fill up the form with the necessary KYC documents and a passport-sized photograph.
• Step 3: Pay the initial deposit and start your account.
• Step 4: Once these documents have been submitted, you will be given a passbook with the account details.

How to open a PPF account online

Here are the steps to open a PPF account online.

• Step 1: You will first have to have an internet banking or mobile banking platform. If you do not have one, apply for the same.
• Step 2: Log in to your bank account with internet banking or mobile banking.
• Step 3: Select an "Open PPF Option."
• Step 4: If you are creating the account for yourself, then select the "Self Account" option. If the account is being opened for a minor, select the "Minor Account" option.
• Step 5: Enter all the required details in the application form.
• Step 6: Decide on the amount that you want to deposit per year and enter that value.
• Step 7: Finish the application and submit it.
• Step 8: An OTP will be sent to your registered mobile number. Enter it into the appropriate field.
• Step 9: You have successfully created a PPF account.
• Step 10: Your PPF number will be displayed on the screen.
• Step 11: An email should be sent to you along with all the details of the account.

How to open an online PPF account in a post office

There is no way to open a PPF account in a post office via an online method. You can, however, download the application form to open a PPF account from their website. So a trip to the post office awaits you if you want to choose this route to open a PPF account.

Here are the documents required for a PPF account opening in India.

• An identity proof which can be a Voter card, Pan card, or Aadhaar card
• PPF Scheme Application form
• Proof of residence
• Pay-in slip available at bank branch or post office
• Signature proof
• Passport size photographs
• Nomination form

The documents required for the PPF account in a post office are the same as above. All you will need to do is self-attest the copies of the documents that you provide.

What Are the Minimum and Maximum Investment Amount for a PPF Account?

You can open a PPF account initially with ₹ 100. However, in a year, the minimum investment amount should be about ₹ 500. The maximum investment amount in a PPF account for a year is about ₹ 1,50,000. You will not receive any interest if you invest more than this amount.

The PPF interest rate is changed and decided by the Finance Ministry every year for the financial quarter. The current PPF interest rate for the financial quarter is set at 7.1% for the April-June period for FY 2021-2022. 

The PPF interest rate in the post office is the same as what you would get if you opened a PPF account through a bank. At present, it stands at 7.1%.

Before we look at how to withdraw from a PPF account, here are the PPF withdrawal rules.

• You can withdraw from the PPF account only after the completion of 15 years.
• However, there is an option for early and partial withdrawal, which can be availed only five years after opening your PPF account.
• You can withdraw only 50% of the amount in your account balance of the preceding year.
• To complete withdrawal, you will need to use Form 2.
• A guardian may apply for partial withdrawal for their children or wards with an unsound mind.
• You can make the PPF withdrawal online. Log in to your online bank account, and if you are eligible for a withdrawal, you can complete it by applying.
• You can also make PPF partial withdrawal by filling in Form C with relevant information.
• Submit it to the bank and await your withdrawal amount.

Here are the PPF premature closure rules. To prematurely close a PPF account, you will need to fill up Form 5 under the following conditions:

• The money is required for the treatment of any life-threatening disease of the account holder, his spouse, children, or parents. You will have to provide documents to prove the same.
• Money is required to pay for the higher education of the account holder or his/her children.
• Change in residency of the account holder.

However, you cannot close the account before the expiry of five years from the date of account opening. Also, a 1% interest will be deducted from the date of account for premature withdrawal.

PPF is known to be completely exempt from tax. The PPF tax exemption applies to the amount deposited, to the interest, and the maturity amount. So consider this vehicle completely tax-free for as long as you keep investing in it. 

In conclusion, PPF is one of India's safest investment options. Any resident of India can open a PPF account and take advantage of the safe, secure, long-term, and tax-free investment option. The procedures for creating a PPF account are simple, and details regarding this vehicle can be found here http://www.nsiindia.gov.in/InternalPage.aspx?Id_Pk=169.