What is Public Provident Fund (PPF) Account – Benefits, Interest Rate, Rules and how to Open PPF

In this article, we are going to discuss What is PPF Account. It is a long term investment tool that helps to grow your money as an investor. Benefits of PPF account are Risk-free investment and Tax-free investment.

But we do have some limitations also while PPF investment. In this article, we are going to know about the limitations and also the benefits of a PPF account.

Also, we are going to discuss all public provident funds features, which are essential and should be known to you if you are planning to public provident funds investment. 

BENEFITS OF PUBLIC PROVIDENT FUND

In this, we get three major benefits.

Risk-Free Investment:

PPF investment is a Risk-Free because its a government scheme. You can blindly trust it and be assured of returns that are promised.

Tax-Free returns:

Returns that you earn from the PPF account are tax-free, which is a huge advantage. Normally in Fixed deposits and other tax-saving instruments, we have to pay income tax as per the bracket when we get the amount back. This may reduce actual returns by 2-3 percent.

Tax Rebate Under Section 80C: You can claim up to 1.5 lac rebate under section 80C if you invest in PPF.

PPF ACCOUNT FEATURES:

ELIGIBILITY FOR PPF ACCOUNT

HOW TO DEPOSIT FUNDS INTO PPF ACCOUNT:

PPF MATURITY PERIOD:

PPF account is about long term investment. In this, we have to invest for 15 years ( called ‘lock-in’ period). Then you get it extended in a block of 5 years.Remember, the year you start depositing is not accounted for as a financial year for PPF, and next year will be counted as the first financial year.

Example – If you have opened a PPF account on 1st July 19, this year is not counted, and also your actual lock-in period starts from 1st April 2020 to 31st March 2035.

PPF INTEREST RATE :

Nowadays, the interest on PPF that is being given is up to 8%, but it fluctuates and depends on the market rate. This interest rate is decided quarterly by the central government. Last 15 years, the PPF interest rate is in a range of 7.5% – 9%.

In this, we get long term benefits also. The PPF interest rate on deposits is calculated by compounding it monthly. Also, it’s calculated on the minimum amount between 5th and last day of every month.

HOW TO OPEN PPF ACCOUNT:

 There are two methods of opening a PPF account.

Physical visit :

You can go to the post office or authorized bank to open a PPF account. There, you need to submit the below documents. 

Online PPF Account visit:

 If you have a bank account on any authorized bank, you directly get an option of an online PPF account opening. Since the KYC is already done with the bank, you can immediately open an online PPF Account.

PPF Withdrawal rules and closure options

Usually, the PPF account has a lock-in period of 15 years. However, there may be cases when an individual is in urgent need of funds. So here you get two options 

PPF account cannot be attached by debt or liability payment. PPF account is for long term like retirement, education, serious illness. If your not depositing funds in your PPF account, your PPF account will become inactive. If you want to revive your account, you have to pay the penalty.

If you want to premature closure your PPF account, you can do it only under two conditions 

If you want to close the PPF account prematurely on the above conditions, you have to pay a penalty of 1%. 

TRANSFER OF PPF ACCOUNT :

 You can definitely transfer your PPF  account to another bank/branch or post office. 

FAQs