Unleash the benefits of Saving Schemes

PART 1. Public Provident Fund

PPF or public provident fund is a long-term investment plan offered to an individual for the purpose of savings related to retirement, education, and marriage of children, illness, etc. It is a government scheme for all individuals offered by mostly all Public and Private sector banks. Unlike mutual funds and market-related investments, it is risk-free and tax-free with the assurance of monthly interest on the minimum balance.

Eligibility

There are certain eligibility criteria defined for the PPF account by the Reserve Bank of India:

1. Resident Indian – Only a Resident Indian can open a PPF account with either the public or private sector Bank.
2. No account for NRI – Non-resident Indians (or NRI) cannot open a PPF account in India. However, if an account is opened prior to obtaining the NRI status, the account holder can operate and continue the account up to the maturity period of 15 years only. Post the maturity period, the account will automatically lapse, and no extension shall be granted.
3. Minor Account – Account on behalf of Minor can be opened and operated by Parent or Legal Guardian.
4. One account one individual – Only one account is allowed for everyone. The user cannot open the PPF account in several banks.

Benefits of PPF Account

1. It is a risk-free investment and the interest is calculated on a monthly basis on the minimum balance. The interest is credited once in each financial year.
2. Unlike most of the other saving schemes like Fixed Deposit etc, it is Tax-free and no tax is deducted on the interest.
3. The account holder gets Tax Rebate under section 80C on the total tax calculated for the financial period in which the PPF premium is paid.

 How and where to open a PPF account

A PPF account can be opened in any of the local branches of Authorised Public Sector Banks such as SBI, Corporation Bank, etc and Private sector banks such as HDFC, ICICI, etc. The individual can also open an account in the local Post Office.

PPF account can also be opened through net banking of the existing saving or current account in the same Bank. In which case, the KYC is not required to be submitted again.

If an account is already opened, the amount can be transferred to another bank or post office.

The following documents are required to open an account:

1. PPF Application form or form A
2. Photographs
3. Pan
4. Address proof and ID proof
5. A cheque, demand draft or cash deposit of minimum Rs. 500/-.

Maintenance and operation of PPF account

The PPF account can be opened with a minimum amount of Rs. 500/-. The account holder can deposit a minimum amount of Rs. 500/- per annum to a maximum of Rs. 150,000/- per annum. No interest is granted for a premium deposited above Rs. 150,000/-.

The amount can be deposited monthly, quarterly, annually and a minimum of 1 to a maximum of 12 installments are allowed in each financial year. The amount can be deposited through cash, cheque, demand draft or online transfer.

If the minor account is also opened, then the total sum deposited in both the PPF accounts should be a maximum of Rs. 150,000/-. No interest shall be credited for an amount exceeding Rs. 1,50,00/-.

PPF account becomes inactive if the minimum amount is not deposited in each financial year. However, upon default, the account can be revived by payment of penalty of Rs. 50/- for each defaulted financial year.

Interest Rates On PPF Account

Interest Rate depends upon various factors such as market conditions etc. The interest rate is decided quarterly by Central Government and generally varies between 7% to 9% pa. It is a monthly compounded interest and is calculated from the 5^th of every month to the last day of every month upon the minimum amount. The minimum amount is the amount maintained from day 5^th of the month till the last day of the month. Therefore, no interest will be granted on the amount deposited between the 5^th and last day of the month.

Maturity period

The minimum duration of a PPF account is 15 full financial years. However, further extension of 5 years is granted on the request of the account holder. This period can also be extended for a further 5 years.

The financial period starts from 1 April to 31 March and the full financial period is counted for calculating the maturity period. Therefore, an investment made after 1 April in any financial year, the said year shall not be counted for the purpose of the maturity period. The maturity period shall be counted from the start of the following financial year of the day the account is opened in case the account is opened after 1^st April.

Loan against PPF Account or Partial Withdrawal

The PPF account holder can either avail loan or withdraw a partial amount. The eligibility criteria are as under:

1. Loan: Upon completion of the 3^rd financial year to the 6^th financial year of opening account, the PPF account holder can avail of a loan. The interest charged would be PPF interest rate + 2%.
2. Partial withdrawal: The PPF account holder can also withdraw the partial amount from 7^th year till 15^th

It is important to note that the PPF account cannot be attached against any debt or liability. It cannot be transferred to any individual or company.

 Premature closure or withdrawal of PPF Amount

Ideally, the PPF account cannot be closed before the maturity period.

However, PPF can be closed only upon the following conditions:

Condition 1:  Minimum 5 financial years to be completed. A PPF account can be closed after completion of 5 years only.

Condition 2:  There account can be closed only under 2 circumstances:

1. The PPF account can be closed due to serious illness of self or any family member upon submission of documents.
2. For higher education of account holder for self. If an account is maintained for minor, then the account can be closed for the education of the said minor upon submission of relevant documents.

Further, the penalty of 1% on interest rate is charged for premature closure of the account. Therefore, if the interest rate granted is 7%, the account holder shall get the premature amount calculated with an interest rate of 6%.