The Public Provident Fund (PPF) is a long-term savings device established by the Central Government. It offers tax advantages on contributions as well as abandonment after the lock-in period. This scheme came into force on July 1, 1968, and is supported by the government to provide old-age income security to the self-employed and those operating in the unorganized sector. Though the scheme is voluntary, guaranteed returns and income-tax benefits have fuelled its popularity. The primary purpose of saving in the PPF account is to avail tax deduction on deposits, assured returns on investment, and tax-free withdrawal on maturity. Savings in this result are completely risk-free because of government backing.
Capital Protection & Inflation Protection
The capital in a PPF account is fully protected as the scheme is backed by the Government of India, making it fully risk-free with ensured returns. The PPF account is however not increase protected, which means whenever inflation is above the most advanced guaranteed interest rate, the deposit earns no real returns. However, when the expansion rate is below the guaranteed rate, it does maintain a positive real rate of return.
Interest rates are aligned with G-sec rates of comparable maturity, with a spread of 0.25 percent. The government has determined to review the PPF rates quarterly. For the fourth quarter of FY20-21, the time has been set at 7.1 percent compounded annually.
The PPF is liquid, notwithstanding the 15-year lock-in stipulated with this account. Liquidity is submitted in the form of loans against the PPF from the third year and withdrawals subject to conditions from the seventh year.
The scheme has an exempt-exempt-exempt (EEE) station, where the deposits, the interest received as well as the maturity amount are tax-free.
The sum spent in the PPF account is eligible for tax deduction under Section 80C subject to a preponderance of Rs 1.5 lakh in a financial year. On maturity the complete product including the interest is tax-free.
Where to Begin an Account
You can begin the account at various places such as:
How to Open an Account
Once you have decided the location to open an account, you will need the following:
How to Contact a PPF Deposit
Earlier, untimely closure of a PPF account was not allowed. However, it is now possible to close your PPF report pre-maturely at a penalty of one percent on the interest. But it can be made only after the completion of five financial years, presented the property is required for the treatment of serious ailments of the record holder, spouse, dependent children, dependent mothers, or for higher education.
Tips and Tactics
Features at a glance:
Eligibility: You require to be a resident Indian
Entry age: No age is defined for account opening
Minimum Investment: Rs 500 per annum
Maximum Investment: Rs 1.5 lakh per annum.
Interest: 7.1 percent increased annually for the period January-March, 2021. Interest rates are subject to revision every quarter.
Nomination Facility: Available