PPF - Public Provident Fund: What is Public Provident Fund / How
to Open a PPF Account / Benefits of PPF Account
Saving for the future is
one of the most important aspects of financial planning. Whether you are a
salaried employee, a business owner, or a self-employed professional, having a
reliable and tax-efficient investment tool is essential to achieve long-term
financial goals. One such investment option, backed by the Government of India
and trusted by millions of Indians, is the Public Provident Fund (PPF).
Public Provident Fund
Act, PPF has become one of the most popular savings schemes due to its
attractive features like tax-free interest, safety of capital, long-term
compounding, and ease of access. For those who want to build a retirement
corpus, save for their children’s education or marriage, or simply want a
low-risk investment avenue, PPF offers a reliable and rewarding opportunity.
What is
PPF?
PPF is a
government-backed savings scheme that allows individuals to deposit money for a
long-term period, usually 15 years, and earn a fixed interest rate, which is
declared quarterly by the Ministry of Finance. The interest earned on the PPF
balance is completely tax-free, and the amount deposited can be claimed
as a deduction under Section 80C of the Income Tax Act, up to a limit of
₹1.5 lakh per financial year.
The PPF account is ideal
for conservative investors looking for guaranteed returns. Unlike shares or
mutual funds, which are linked to the market and involve risks, PPF offers assured
returns. It is often recommended as a part of a balanced investment
portfolio.
Key
Features of PPF
Let’s explore some of the
major features that make PPF an attractive investment option:
1. Government
Backed: Since the PPF scheme is backed by the central
government, your money is safe and secure. There’s no risk of default or
capital erosion.
2. Tenure:
The minimum duration of the scheme is 15 years, which can be extended in
blocks of 5 years after maturity. The long-term nature encourages disciplined
saving.
3. Investment
Limit: You can start a PPF account with just ₹500 annually.
The maximum amount you can deposit in a financial year is ₹1.5 lakh. You can
deposit either as a lump sum or in a maximum of 12 installments per year.
4. Interest
Rate: The interest rate is compounded annually and revised
by the government every quarter. As of Q2 FY2025-26, the interest rate is 7.1%
per annum.
5. Tax
Benefits:
o Deposits
qualify for deduction under Section 80C.
o Interest
earned is exempt under Section 10(11).
o Maturity
proceeds are tax-free.
6. Loan
and Withdrawal Facility:
o Loan
can be availed from the 3rd year to the 6th year.
o Partial
withdrawals are allowed after the 7th year.
7. Nomination:
You can nominate one or more persons to receive the balance amount in the
unfortunate event of your death.
8. Who
Can Open a PPF Account: Any resident Indian individual can
open a PPF account. An individual can open only one account in his or her name.
You can also open a PPF account on behalf of a minor child.
How to Open
a PPF Account
Opening a PPF account is
simple and can be done through most major banks and post offices. With the
availability of digital banking, PPF accounts can also be opened online through
bank portals such as SBI, HDFC, ICICI, Axis, and more. You’ll need the following
documents:
- PAN card
- Aadhaar card
- Passport-size photograph
- Initial deposit (₹500 or more)
- KYC documents
Once the account is
opened, you will receive a passbook (or digital records) showing all deposits,
interest credits, withdrawals, and the balance.
Interest
Calculation and Compounding
Interest on PPF is
calculated on the lowest balance between the 5th and the end of each month,
and is credited at the end of the financial year. To maximize returns,
it is advisable to invest the full amount before the 5th of every month or make
an annual lump sum contribution before 5th April.
The power of compounding
in PPF plays a significant role in long-term wealth creation. Even small but
regular contributions can lead to a substantial corpus at maturity due to
compound interest.
Example of
Wealth Growth in PPF
Let’s say you invest ₹1.5
lakh every year in your PPF account:
|
Year
|
Investment
(₹)
|
Interest
(7.1%) (₹)
|
Total
Value (₹)
|
|
1
|
1,50,000
|
10,650
|
1,60,650
|
|
5
|
7,50,000
|
1,85,515
|
9,35,515
|
|
10
|
15,00,000
|
7,35,557
|
22,35,557
|
|
15
|
22,50,000
|
15,28,244
|
37,78,244
|
(Figures are approximate
and for illustrative purposes only.)
What
Happens After Maturity?
Once the 15-year term is
completed, you have 3 choices:
1. Withdraw
the Entire Amount – You can close the account and withdraw
the full maturity value tax-free.
2. Extend
Without Contribution – You can let the account continue for 5
more years without depositing more money. Your balance will keep earning
interest.
3. Extend
With Contribution – You can continue investing and enjoy
all the benefits, but you must inform the bank/post office within one year of
maturity.
These flexible options
give investors the ability to continue building their savings even after the
initial 15 years.
Common
Questions About PPF
Q1: Can I open more than
one PPF account? No. As per rules, one individual can have
only one PPF account. However, you can open a second account in the name of a
minor child.
Q2: What if I skip
investing in a year? If you fail to make the minimum ₹500
deposit in a year, the account will become inactive. To reactivate, you need to
pay a ₹50 penalty plus the minimum deposit for each skipped year.
Q3: Can NRIs invest in
PPF?
No. NRIs are not allowed to open new PPF accounts. If a resident Indian becomes
an NRI later, he can continue the account till maturity but cannot extend it
further.
Q4: Can I withdraw before
15 years? Partial withdrawal is allowed after the completion of
6 years, but only under specific conditions. Complete withdrawal is allowed
only after 15 years.
Why PPF Is
a Must-Have in Your Portfolio
In today’s world where
market volatility can affect equity investments and interest rates in banks
fluctuate frequently, PPF offers a safe, stable, and tax-efficient avenue
to build wealth. It instills a habit of disciplined savings and is particularly
beneficial for people with low to moderate risk appetite.
Here are a few compelling
reasons why you should consider PPF:
- Secure your retirement:
Long-term compounding and tax-free returns make it a perfect retirement
tool.
- Save for children’s
education/marriage: You can use the maturity
amount for large life goals.
- Diversify your investments:
If you are investing in market instruments, PPF acts as a stabilizer.
- Tax planning:
Helps you reduce taxable income while earning safe returns.
Conclusion
PPF is not just another
savings scheme—it is a powerful financial tool that combines safety,
growth, and tax savings. Whether you are a young professional starting your
career, a middle-aged investor planning for children’s future, or a retiree
looking for tax-free income, PPF can serve different needs at different stages of
life.
By investing consistently
and wisely, even small contributions in PPF can turn into a significant
financial cushion. In an age of uncertainty and ever-changing financial
products, the Public Provident Fund stands out as a timeless and trusted
investment option for every Indian.
Disclaimer: All the Information is based on the notification, circular advisory and order issued by the Govt. authority and information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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