What Is PPF, Exactly? What Are the Benefits?
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Backed by the government of India, the Public Provident Fund (PPF) is a popular savings cum tax-efficient investment option available in the market. The Ministry of Finance, Govt. of India introduced PPF in 1968 with an objective to motivate small investments among investors. With an interest rate of 7.1% per annum (compounded annually) PPF provides an opportunity for the inventors to create a strong financial cushion in the long term. Let’s read further to know in detail about the benefits offered by the PPF scheme.
Features of PPF Investment
Listed below are some of the features of a Public Provident Fund:
- PPF has a minimum tenure of 15 years. Investors who wish to continue their PPF investment can also extend it for the next five years
- An individual can start contributing to the PPF scheme with a minimum investment of Rs 500 and can invest a maximum of Rs 1,50,000 in a financial year.
- Public Provident Fund investment can be both in a lump sum or in installments. You have to pay at least once annually or you can pay in monthly installments. Payment is for 15 years or as long as you continue the PPF investment
- You can deposit money through various modes like cash, cheque, DD (Demand Draft), or money/fund transfer
- You can designate a nominee for your Public Provident Fund account but it can be only in the name of one individual. A PPF account cannot be a joint account, neither HUFs can hold a PPF account
- Besides this, there are various other benefits offered by the Public Provident Fund, which makes it a lucrative option for investment.
Benefits of PPF Investment
Let’s take a look at some of the benefits offered by PPF:
Tax Saving Benefits
One of the major benefits offered by PPF is that it offers a triple tax benefit. PPF scheme provides an opportunity to avail of tax benefits in EEE (exempt, exempt, exempt) format. This means that the contribution made towards the PPF scheme up to the maximum limit of Rs.1.5 lakh is tax exempted. Moreover, the interest earned on the contributed amount and the maturity benefit is also tax exempted under Section 80C of the Income Tax Act.
Risk-Free, Guaranteed Returns
As compared to any other investment options available in the market. PPF is considered one of the safest options of investment as it is entirely backed by the government of India. Moreover, the returns, too, are guaranteed under the PPF scheme. The public provident fund ensures the financial security of an individual even after retirement with minimum risk involved.
Small Savings & Good Returns
An individual can start contributing to a PPF account with a minimum investment of Rs.500 and can invest up to a maximum of Rs.1.5 lakh in a financial year. Moreover, as compared to other tax-saving investment options, PPF offers a lucrative interest rate of 7.1% per annum ( compounded annually). The interest rate of PPF is revised by the central government every quarter. With a profitable rate of interest, the PPF scheme provides an opportunity for investors to multiply their funds in the long term and gain high returns.
Partial Withdrawal
You can partially withdraw money from PPF, other than loans when facing financial hardships. You can make one partial withdrawal from the 5th year onwards. Partial money withdrawals from the PPF investment account can be in either way as below:
50% of the invested amount until the 4th year when you can request it in the 5th year
50% of the account balance until the preceding financial year when you request in the current year after 5 years or more
Premature Closing
Although PPF is for long-term investment, there is an option for a premature closing. It is to support investors and use their money when in dire need of it. However, one can go for premature withdrawal of all invested money only after 5 years. It is allowed under the below listed certain conditions only:
When the PPF account holder or dependent spouse, children, or parents suffer from a life-threatening disease or critical illness. You will need to submit all relevant medical reports and other relevant documents. You can use the PPF account balance for medical purposes
For funding the higher education of children. Bring admission confirmation letters/documents and fee receipts to get financial assistance by closing the PPF investment account prematurely
NRIs cannot have a PPF account. You can go for premature closing when there is a change of residence status. Present your Passport, Visa, ITRs (Income Tax Returns), etc. as required. An investor has to be an Indian citizen for holding a PPF account. It is one of the eligibility criteria for PPF account
The rate of interest (ROI) applied for premature closing is 1% less than the currently prevailing one.
Tax Saver Benefits
PPF investment has tax saver benefits under Section 80C deductions. It is one of the few investment plans in India that enjoys the advantage of Exempt-Exempt-Exempt (EEE) tax status. The tax-exempted amount deposited in the Public Provident Fund in each financial year up to Rs. 1,50,000 is exempted from tax. The interest earned on PPF is also free from tax liabilities. Also, at the time of withdrawal, the maturity amount including the principal sum and the interest is free from taxation.
Conclusion
All the above-mentioned benefits make PPF investment an efficient investment plan. PPF is one of the safest investment options. Even a court’s order doesn’t allow the PPF to pay off the debtors. There is transparency in interest calculation as well. Government declares the ROI (rate of interest) every quarter. The weighted average of all quarterly rates of interest (ROI) gets compounded every year. PPF often offers a higher rate of interest than bank fixed deposits (FDs). There is liquidity with facilities of loans and partial withdrawals. Tenure extension is flexible as well.
