What is a Public Provident Fund (PPF)?
A Public Provident Fund (PPF) is a government-supported, long-term savings plan in India, designed to promote financial security. It provides competitive interest rates and tax advantages, making it an appealing option for future-focused savers.
Advantages of PPF
- Tax Savings: Deposits qualify for deductions under Section 80C of the Income Tax Act.
- Assured Returns: Offers a government-set interest rate, updated every quarter.
- Long-Term Commitment: A 15-year lock-in fosters consistent saving habits.
- Loan Option: Loans are available against your PPF balance starting from the 4th year.
- Limited Withdrawals: Partial withdrawals are permitted after the 7th year for emergency needs.
- Secure Investment: As a government-backed scheme, PPF ensures high safety.
Steps to Open a PPF Account
You can initiate a PPF account at any authorized bank or post office. Complete the required application form, submit documents such as proof of identity, address, and a recent photograph, and deposit the initial amount.
Key Features of PPF Accounts
- Minimum Contribution: ₹500 annually
- Maximum Contribution: ₹1.5 lakh annually
- Duration: 15 years, extendable in 5-year increments
- Interest Rate: Adjusted quarterly, currently around 7.1% per year
- Account Nature: Only individual accounts; joint accounts are not permitted
- Nomination: Can be set during account opening
- Early Closure: Allowed after 5 years under specific circumstances
Frequently Asked Questions
1. What are the minimum and maximum investment limits for a PPF account?
You can invest a minimum of ₹500 and a maximum of ₹1.5 lakh per year, in multiples of ₹50.
2. Is it possible to open a PPF account online?
Yes, several banks allow online PPF account opening via their internet banking platforms, requiring digital submission of documents and KYC verification.
3. How is PPF interest calculated?
Interest is computed on the lowest balance between the 5th and the last day of each month, compounded yearly and credited at the financial year’s end.
4. Can I borrow against my PPF account?
Yes, loans are available after the 3rd year, up to 25% of the balance from the second preceding year.
5. What happens if I skip a PPF deposit?
Missing the minimum ₹500 deposit in a year renders the account inactive. Reactivation requires a ₹50 penalty per defaulted year plus the minimum deposit for that year.