What is PPF Account -Public Provident Fund .? What are rules for investing in PPF? What interest rate will I get? How to check PPF balance? When I can I withdraw or take loan from PPF? Is there tax saving benefit? How can I invest – offline and online? Read on to get answers..
Tip: If you ask me ‘What is the one investment I should never miss as an Indian’?. Then I recommend PPF – Public Provident Fund as that investment.
PPF Account – Public Provident Fund
‘Provident’ in English means making or indicating to make preparations for the future. PPF or Public Provident Fund is a scheme operated by the Government of India to help Indians plan for their retirement and future. So in simple terms PPF is a collective fund operated by the Indian Government for the general Indian public to plan/prepare for their future.
The Government collects these PPF funds through various avenues. Some of them are Post Offices and scheduled/approved banks. Till now the preferred route was post offices. But there is a gradual shift towards PPF through Banks in Online mode.
The funds collected are then used by the Government and so they pay an interest for that. Since it is operated by GOI there is negligible chance for default.
Eligibility for opening PPF account
The eligibility criteria for opening a Public Provident Fund (PPF) are:
- The individual should be a resident of India – He can be a salaried or a business person (self-employed).
- Must be above 18 years of age
- Non-Resident Indians (NRI) are not eligible. A resident who becomes an NRI after opening the account can continue to invest on non-repatriation basis ie., they cannot take PPF money outside India. Also they cannot extend beyond maturity ie., 15 years.
- There can be only one PPF account per person. If you have a PPF account already, then you cannot open a new one. If it is found you have more than one account, then oldest account will be closed. Also, only principal amount will be retuned. No interest will be paid from beginning .
- PPF can be opened for minors – Only if they have a legal guardian cosigning. Note: Co-signee/guardian’s limit is Rs 1,00,000 including deposit into minor account. For eg., you open a PPF for your son. You make Rs. 30,000 into his account. So,maximum amount you can invest into your own PPF account is Rs70,000. For official government release check PPFRulesAct1968
Also check out: Types of Life Insurance
Rules of PPF account and how to invest
- The PPF account will be active for 15 years. It can be extended in blocks of 5 years (except for NRIs)
- You can appoint a nominee. If you have multiple nominees, mention the percentage to split when appointing. For eg., you appoint your wife and mother. Then mention your wife will get 50% and mother will get 50% of maturity amount. So if you have 20 lakh at end, each will get Rs 10 lakhs.Note: If the PPF balance is greater than Rs.1,00,00 then nominee needs to submit identity proof during claim.
- PPF rules state that account cannot be transferred from one person to another
- The minimum amount that must be invested in a Public Provident Fund is Rs.500. The maximum limit is Rs.1,00,000 for each financial year.Before November 2011 the limit was Rs.70,000. Update: The new PPF limit has been hiked to Rs.1,50,000 with effect from April 2014.
- There can be maximum 12 payments in a year and minimum one payment every year. If you fail to make one payment each year into PPF account, then there is a fine of Rs 50. The account will not be suspended but Loans and withdrawal benefits will be suspended until account is active again. Also you will not earn any interest for the whole year.
- Investments can be made by visiting the nearest post office or through designated banks. SBI and ICICI are preferred as you can do them online. There will be another post on how to do them.
Interest Rate of PPF and how is it calculated?
The Government of India decides the interest rate each year. There is a notification through the Reserve Bank of India from the Finance Ministry. The current rate of interest for Public Provident Fund is 8.7% per annum compounded annually. But, interest calculation is done at end of each month.
Only amounts cleared and credited before the 5th day of each month will be considered for interest. For eg., If you deposited check on 5th April and it got cleared on 7th April then you won’t earn interest for whole April month. The rate is usually on par with the inflation rate and depends on the current economic factors.
The table below gives the historic PPF fund interest rates. Source : Wikipedia.org – Public Provident Fund. As you can see, the current rate for 2014-2015 period is 8.7%. Usually PPF rate is 0.25-0.5% above the 10 year government bond yield for the same period.
|1978||1979||8.25% + 0.5%|
Advantages and Disadvantages of Public Provident Fund(PPF):
Pros of PPF:
- Full security – As it is a government scheme, there is no chance of default. Its 99.5% safe.
- Compounded earnings – Since it is a longer horizon scheme, you will get the benefits of compounding. For eg., you invest Rs 24000 each year (total investment=Rs 3,60,000), then at end of 15 years you get Rs.7,41,620 at maturity.
- It locks your money and it is cumbersome to withdraw. So it instills discipline. You will not withdraw at every chance
- There is tax saving benefit under section 80C upto maximum Rs.1,00,000
- You can withdraw partially or take loans during emergency
- One of best interest rates among tax savings schemes and other fixed interest instruments. Almost on par with Indian WPI inflation rate or above. Definitely read: What is inflation – Causes, How to calculate,how it affects you
- The benefits of maturity are tax free.
- The amount paid in the event of death is free from court attachments. ie., Assume you owe Rs 10,00,000 to a bank. If you die, the lender can attach you assets like shares, fixed deposits, house to recover their money. But they cannot touch your PPF amount. It goes solely to the nominees. Even if you go bankrupt, the creditors can’t touch your PPF account. Cool right
- High lock in period of 15 years. Premature closure is not allowed.
- The procedure to withdraw money from PPF is a bit tedious. With lots of procedures
- An individual cannot invest on behalf of HUF (Hindu Undivided Family) or Association of persons.
That’s it. The pros far outweigh the cons. Check our FREE PPF Calculator here. Haven’t you opened your PPF yet ? Get going.
- You can take a loan from your PPF account. You can take a loan from 3rd year your account was open until the end of 5th year. For eg., if you opened your PPF account on September 2012 , then you can take a loan from April 1st 2014 to March 31st 2018.
- How much loan from PPF? – You can take upto 25% of PPF corpus at end of previous financial year. Ie., if you apply on 4th year, then 2nd year corpus will be considered.
- What is interest rate for PPF loan ? – The interest rate is usually 2% above the PPF rate. For eg., if PPF is 8.7%, then your PPF loan interest will be 10.7%
- How many loans can I take? – You can take upto 2 loans. Second loan can be taken after fully repaying 1st loan . Note: It must be before 5th year end. You must repay your loan in less than 36 months
- You can use the below forms for taking loan
Use this form for applying loan in SBI PPF account: SBI PPF Loan Form
Suggested Read: Top 10 tips to improve credit score to get loans fast
Withdrawal from PPF
- You can withdraw from PPF account on emergency situations from the end of 6th financial year.
- It is limited to one withdrawal per year.
- You can withdraw upto maximum 50% in your PPF corpus balance. For eg., if PPF account was opened in 2006-07 and first withdrawal was made during 2012-13. Your withdrawal will be limited to 50 % of the balance as on 31.03.2009 or 31.03.2012 whichever is lower. Also if you have a loan, that amount will be deducted before calculating the 50% limit.
- Once withdrawn you cannot repay your amount.
- If after 15 years, then the limit is increased to 60% of corpus.
- You also need to give a valid justification in writing. You must mention a proof why you are withdrawing. For eg., if you are building a house or taking loan for child’s marriage, then some bank managers ask for the proof.
PPF Withdrawal form from India Post
How to invest in PPF – Offline and Online:
Investing in PPF can be done in two ways. Through Indian Post Offices and designated bank branches (SBI, PNB, ICICI, IDBI etc.,)
If you want to invest offline in through SBI with your savings account, then
- Download and fill up the PPF account Opening Form. Click here
- Attach photocopies of ID proof, Address Proof and 2 passport photo
- Sign the form and self attest the proofs.
- Take them to your nearest branch and submit. If you have an SBI account, then the PPF will be attached to your account. Else you need to open an account with that branch.
- You can make payments every month into PPF manually. Or ask for ECS debit from your Savings account. Use below form for opening PPF in SBI.
PPF Opening form from IndiaPost
The procedure is almost similar for all branches. We suggest you open PPF account with banks instead of post office. Why? Because you can convert to online mode. No need to visit personally everytime.
Similar Morning Star PPF article: 20 Must know facts on PPF
To invest online in PPF through your bank
- All banks want your PPF account to be used through them.
- You can see a ‘Invest PPF online’ once you login to your savings account
- Just click on that and follow instructions. Fill all details
- Then link your PPF and Savings account
- Give the PPF account number as ‘Payee Name’ .Very important step.
- You can then manually transfer or schedule auto debits. We will create a separate post with step by step procedure.
Check ICICI website for opening PPF online
Transfer PPF account from Post Office to Bank branch
- Download transfer form SB-10b from www.indiapost.gov.in/pdfForms/SB10-b-ApplnforTfrofAccnt.pdf
- Or get the form from your nearest post office. Fill in the details
- Approach the Head Postmaster and ask for the transfer. Submit the form with ID proof and copy of Post Office Savings book. Once it is processed, the Post Master will send originals of Nomination form, Certified copy, Account opening form to the SBI branch you mentioned. He will also attach a cheque for the corpus in your amount.
- Once received by your branch, fill new account opening form at branch. Refer procedure above for offline investment. Repeat.
- The bank will then transfer the old balance to your new PPF and you will get a passbook. It will not be considered as new account but a transferred account.
- You can check your PPF balance online by directly accessing from your Savings account.
What to do with PPF once matured
Assume that you have completed 15 years of your Public Provident Fund. You have 3 options
- Extend your period by block of 5 years. Note: You can’t do it at end of 15th year. You have to do the extension before the end of 14th year. You can keep extending every 5 years as long as you want with fresh investments.
- Withdraw all your money at end of 15th year. The interest and whole corpus is tax free. Close the PPF account.
- Just leave the account idle. Your money will get its interest every year and it will be compounding (@ 8.7% p.a as per current rates). You can withdraw from your Public Provident Fund as much times as you want after 15th year. In full or in parts. Note: Only one withdrawal per year.
The post had so much information it is already bit long. So, as mentioned above, we will do a separate post on checking balance for EPF and how to invest online with ICICI/SBI in separate posts. Look out for those posts.
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