Importance of PPF

Importance of PPF

by Rohan Mathew

The Public Provident Fund (PPF) is one of the most reliable and trusted options for investments amongst a large section of citizens in India. It offers several benefits for those looking to securely accumulate wealth over the course of their professional careers while enjoying handsome tax benefits simultaneously. This is a scheme that is secured and guaranteed by the Central Government while the principal amount remains absolutely safe, one of the biggest criteria for investors who are looking to open up PPF accounts. 

Who Should Go for a PPF Account?

PPF accounts are suitable for people who have a lower appetite for taking financial risks. The plan is offered by the Government and supported with guaranteed investment returns for safeguarding the requirements of citizens. Funds in the PPF are not linked to the market as well. You can diversify your investment basket by deploying money in the Public Provident Fund. This will help you preserve capital if there is any downward slide in the market. 

Key Features of PPF investments 

Here are some major aspects linked to PPF investments that you should know more about- 

  • Investment Duration- These accounts have 15-year lock-in periods and you cannot fully withdraw funds before this duration. Investors may extend this duration by another 5 years post the lock-in period. 
  • You can invest a minimum amount of Rs. 500 annually in the account or a maximum amount of Rs. 1.5 lakh. This may be done via a lump sum amount or via instalments. Yet, an individual holds eligibility for just 12 instalment payments in the PPF account for a particular financial year. 
  • You have to invest each year in the PPF account for keeping it active and interest-earning. 
  • Public Provident Fund offers the option of getting a loan against the amount that you have invested. Yet, the loan will only be given if it has been taken from the start of the third year till the conclusion of the 6th year from the account activation date. Just 25% or lower of the total available amount in this account may be claimed in this regard. The loan will have to be repaid within a period of 36 months or 3 years. 
  • Resident Indian citizens hold eligibility for opening PPF accounts in their names. Minors may also possess these accounts in their names although they will be operated by their guardians or parents. 
  • NRIs do not have permission to open any new accounts. Any existing accounts in their names will stay active until the tenure is concluded. However, they cannot extend the duration by another 5 years which is one benefit that only resident Indians can avail. 
  • Interest payable upon the public provident fund account is fixed by the Government of India periodically. It aims at ensuring more interest as compared to conventional accounts in commercial banks. 
  • You can open your account both offline or online. 
  • You will need KYC documents for identity verification like a Voter ID card, Aadhar card, Driver’s License and so on. You will also need proof of residential address, PAN card and form for nominee declaration along with a passport-sized photograph. 

Tax Benefits on PPF Account

The entire investment is eligible for deductions in a financial year under Section 80C up to Rs. 1.5 lakh. The interest earned on the PPF investment will be exempted from taxation as well. The entire amount withdrawn at maturity will also be completely tax-free.

Partial Withdrawal of PPF account

In case of emergencies, partial withdrawals may be made. However, this is possible post completion of 5 years from activation of the PPF account. Up to 50% of the overall balance in credit at the completion of the fourth financial year or end of the previous year, whichever is less, may be withdrawn. 

Premature Withdrawal of PPF Account

Premature closure is only allowed upon fulfillment of a few terms and conditions. Those closing prematurely will get 1% reduced interest than the applicable rate. The account should have been active for a minimum duration of five years from the date of opening the same. Premature closure is allowed if the account holder or his/her parents, spouse or dependent children are ailing or suffering due to any life-threatening disorder/disease. Medical documents have to be provided in this regard. This is also possible if the account holder requires funds for higher education purposes. Documents like confirmation of admission and receipts of fees will be needed in these scenarios. This is also possible once the residency status undergoes change. Necessary documents required include proof of residency change, passport copy, income tax returns and visa. 

Tenure Extension

The PPF scheme has a tenure of 15 years. Once the account is matured, subscribers can withdraw the amount which comes under tax exemption. However, a good thing is the subscribers can apply for an extension to avail of another 5 years of active investments. And, furthermore, they can also choose whether they want to continue with the contributions or not.

PPF  – A Pension Tool

PPF account can be used as a good Pension scheme if a subscriber decided to extend the scheme tenure without opting for further contributions. Hence, this can also be counted as one of the major benefits of opening a PPF account.

Bottom line

The importance of PPF cannot be denied. It is one of the best ways to accumulate a sizable future corpus without paying any taxes on the maturity amount and interest earned. You also get deductions up to Rs. 1.5 lakh on the principal amount invested in a financial year. There is a stringent lock-in period and strict withdrawal guidelines but the rates of interest are attractive and you will not have any worries of market fluctuations and other economic factors. However, if you are not a risk-averse investor, you can also check other market-linked investments such as mutual funds and stocks. 

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