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.
There are certain eligibility criteria defined for the PPF account by the Reserve Bank of India:
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:
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 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 5th of every month to the last day of every month upon the minimum amount. The minimum amount is the amount maintained from day 5th of the month till the last day of the month. Therefore, no interest will be granted on the amount deposited between the 5th and last day of the month.
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 1st April.
The PPF account holder can either avail loan or withdraw a partial amount. The eligibility criteria are as under:
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.
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:
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%.