Public Provident Fund – all you need to know

Everyone knows the importance of savings. I am not going to put more emphasis on the already known fact. However, the confusion really arises after one starts saving. Questions like where to park the fund? How to get optimal return without loss of capital? What investment avenues are available? pop up immediately. In order to understand which Scheme or Product is going to be beneficial and will serve the purpose of the investor, she needs to first know about the products and schemes available in the market and the purpose behind each of these product’s existence. One step at a time. This article has been written with the intention to clear all doubt related to PPF.

About PPF

Public Provident Fund (PPF) was introduced by the Government of India in the year 1968 as a savings scheme with the aim to ensure a comfortable and secure retirement, not only by providing an avenue to invest but also by attaching tax benefits to it to make it more attractive and allow one to save on annual taxes. Tax benefit was introduced to provide a push in the right direction, so every retiree is independent financially. One does not need to be a salaried employee to enjoy the benefit of this scheme.

A number of banks provide the facility to open a PPF account apart from Post Offices. One can open the account not just in the offline mode but now many banks offer the online facility thereby making the procedure a lot easier and convenient. One person can open only up to one PPF account in his/her name.

PPF offers a return of 7.1%, higher than the prevalent Fixed Deposit Interest rate.

One can deposit as low as Rs.500. Up to 12 transactions in a year is allowed. Maximum amount one can deposit on which interest will accrue is Rs.150000. Please note, even if more than 1.5 lacs is deposited annually, interest will be earned only on the stipulated maximum limit.

The returns from PPF accounts are fixed and risk free, proving to be excellent avenue to park funds with guaranteed returns. They have tax benefits and E-E-E status making it more attractive. Not many investments have this benefit. The principal amount, interest earned and the maturity amount, all are exempt from tax. Additionally, one can claim a deduction for up to Rs. 150000 annually on invested amount under section 80C of the Income Tax Act.

Another very interesting fact many don’t know about PPF is that it cannot be and shall not be liable to attachment under any court order for any liability or debt the account holder has. Simply put, if the holder has any outside liability, credit amount in the PPF account of the holder cannot be attached to such liability.

A PPF aims at a secured retirement, as established earlier, therefore it doesn’t come as a surprise that it has a long-term investment horizon, 15 years. However, even though it has a lock in period of 15 years, one is eligible to partially withdraw or take a loan against the PPF deposits. An account holder can also continue the account after maturity in 5-year blocks and continue to earn interest without making further deposits. Calculation of these 15 years can sometimes be a little tricky to understand for some. The 1^st year of PPF account is calculated from the immediately succeeding 1st April from the date of deposit. For example, let’s say you started an account of 1^st Feb 2020. 15 years will be calculated from 01-04-2020. Now of course, there are some rules pertaining to loan, partial withdrawal, premature withdrawal etc, which I’ve not mentioned only because that would be too much information.

Please feel free to comment and share any feedback, would love to hear from you all.