Public Provident Fund (PPF) || All You need to know to take advantage of it

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PPF Public Provident Fund

The Public Provident Fund (PPF) account or Public Provident Fund Scheme is among the most popular long-term saving-cum-investment products. It is offered by the central government of India. It was introduced to the public for the first time in the year 1968 with the objective of helping individuals make a small savings on a regular basis while providing old-age income security for them. Primarily it was targeted towards the self-employed and those working in the unorganised sector.

It offers tax benefits on contributions as well as withdrawals after the lock-in period is over. Though it is a voluntary scheme offered to the people, the guarantee of returns and income-tax benefits have fueled its popularity.

PPF Features at a glance

    • Investment: PPF allows for a minimum investment of Rs.500 and a maximum investment of Rs. 1.5 Lakh per year. The investment can be made in lump sum or in monthly instalments.

    • Mode of Investment: Once PPF account is opened an individual and deposit funds in that account either by way of Cash deposit, Demand Draft (DD), Cheque or through online fund transfer.

    • Tenure: PPF account has to be opened for a minimum tenure of 15 years. Once 15 years is over it can be extended in blocks of 5 years. There is no limit on the number of extensions.

    •  Nomination and Joint Account: An individual opening a PPF account can designate a nominee for their account either at the time of opening of account or anytime after that. But opening of joint account in PPF is not allowed and can only be held in name of an individual.

    • Risk Factor: Since it is government of India backed, the return offered here are guaranteed and risk free. However, it is not protected from impact of Inflation. Which means when the inflation rate is higher than the guaranteed interest rate the deposit earns no real returns.

    • Tax Benefit: The scheme has Exempt-Exempt-Exempt (EEE) Status, where the deposit, the interest earned as well as the maturity amount are all tax free. The sum invested in PPF is eligible for deduction under section 80C subject to a maximum amount of Rs 1.5 Lakhs per year.

    • Interest Rate: Currently the interest rate offered is 7.1% p.a. This interest rate is aligned with G-sec rates of similar maturity. The government reviews this rate on quarterly basis.

    • Liquidity: Despite the 15-year lock-in period associated with the scheme, it is liquid. The liquidity is offered in the form of loans against PPF which can be availed by an individual from the 3rd year onwards up to a maximum of 25% of amount in PPF account for a maximum tenure of 36 months (three years). A second loan against PPF can only be taken once the first loan is fully repaid. Upon completion of 6 years i.e., from 7th year onwards the scheme also permits partial withdrawals up to 50% of the amount in the account at the end of 4th preceding year or the preceding year whichever is lower.

Account Holder Eligibility

    • All Indian Citizen can take advantages of benefit offered by PPF
    • One citizen can only have 1 account
    • NRIs and HUFs are not eligible to open account

Where to Open a PPF Account

One interested in opening an PPF account can choose from the multiple options available to them, which are:

  • Post Office
  • Branches of Nationalized Banks: SBI, PNB, Etc.
  • Some private sector bank: HDFC, ICICI Axis, Etc.
Documents for Opening Account

Once You have decided the place where you want to open an account, you will be needing the following documents:

    • Dully filled account opening application form
    • Passport sized photos
    • Address and Identity Proof such as Aadhar, PAN, DL, Voter’s Identification Card, etc.
    • Nominee Declaration Form 

Account Opening Process

    • Online Account Opening/ Bank
        • Step 1: Login to your internet banking portal or mobile banking App.
        • Step 2: Select ‘Open a PPF Account’ from the options
        • Step 3: Enter the relevant details in the application form
        • Step 4: enter the total amount you want to deposit in the account per financial year.
        • Step 5: Submit the application. OPT verification will be done at this stage.
        • Step 6: Once application is submitted and verified with OTP, PPF account will be created, The details of same will be displayed on your screen and you will receive a mail with the same details.

    • Post Office
        • Step 1: Get the account opening form either by visiting your nearest post office or you can download the same here.
        • Step 2: Fill up the form with all the required data and get the required documents in order.
        • Step 3: Submit the form at the nearest post office with required KYC documents and passport-sized photos.
        • Step 4: Make the initial deposit required to open the account. The same starts from Rs 500
        • Step 5: Once your application is processed and PPF account is opened a passbook will be given to you.

Withdrawal Process

The following steps needs to be followed in case you wish to partially or completely withdraw the balance available in your PPF account.

  •  Step 1: Get the application form for withdrawal of PPF (Form 3/ Form C) from the bank/Post Office where you have your PPF account
    • This form has 3 section
      • Section 1: Declaration, here you have to give details like your PPF account number, the amount you want to withdraw.
      • Section 2: is the office use section. It contains details like date when PPF account was opened, total balance available in account, total amount available for withdrawal, date of previous withdrawal request, the amount of money sanctioned for withdrawal, date & signature of person in charge.
      • Section 3: Bank details, this section contains the details of bank account in which you want your money to be transferred or in whose favor DD is to be issued.
  • Step 2: Fill all the relevant sections of the form with the required information.
  • Step 3: Submit the application to the concerned branch of bank or post office where you have your PPF account.
Tips for our end

    • Deposit the PPF contribution between the 1st and 5th of every month to earn interest for the whole month in case you are planning for monthly deposit.

    • In case you are panning for lumpsum investment the same should be done at the beginning of the financial year. This will ensure that your investment earns interest for the complete year and you get the benefit of compounding effect.

If you are looking for some other alternatives of PPF which offers tax benefit kindly refer this post where we have discussed and compared the various options available under section 80C and how they stack up against each other.