In India, saving money wisely is crucial for securing your future. One popular and safe option is the Public Provident Fund (PPF) account. Let’s break down what a PPF account is and why it might be a good choice for you.
What is a Public Provident Account (PPF)?
A Public Provident Fund (PPF) is a saving cum tax saving instrument that was introduced in India in 1968 by the National saving institute of the Ministry of Finance with the objective of mobilizing small savings in the form of an investment, coupled with a return on it. The aim of PPF is to enable one to build a retirement corpus while saving on annual taxes.
Anyone who is an Indian citizen can open a PPF account, either for themselves or on behalf of a minor. You can open this account at most banks and post offices, and some banks even offer the option to do it online.
PPF scheme allows to people deposit between Rs 500 to Rs 1.50 lakh in a financial year. You can deposit Rs 1.50 Lakh at one time or you can deposit by instalment up to Rs 1.50 lakh in a financial year.
The amount you invest the interest you earn and the total amount you get at maturity are all tax-free. This account has
years lock-in period however you can extend it in blocks of years as you wish to continue saving.
Key Features of Public Provident Fund (PPF)
- Time Period: The time period of The PPF account is 15 years. Whatever amount is deposited by the account holder it will be locked for 15 years After this, you can extend it in blocks of 5 years.
- Interest Rate: Presently Rate of Interest on the PPF accounts is 7.1% however government of India sets an interest rate on PPF every quarter.
- Tax Benefits: Income Tax Act under section 80c whatever amount invested in PPF is considered under tax deduction and on maturity whatever interest earned is exempt from the tax.
- Minimum and Maximum Investment: Any individual can open a PPF account by depositing a minimum amount of Rs 500 and the same way every year they can invest a minimum of Rs 500 however The maximum amount that can be invested is Rs 1.50 Lakh per annum.
- Withdrawals and Loans: Even lock-in period of 15 years of a PPF account, the Account holder can withdraw partially after the 7th year of account opening for a specific reason only. However, the account holder can take loans against the PPF balance from the 3rd year of account opening.
Why Invest in Public Provident Fund (PPF)?
- Safety: This scheme is backed by the government of India hence there is no risk of losing your investment.
- Long-term Savings: Due to the 15 years lock-in period it encourages long-term saving which is perfect for building a retirement fund
- Tax Savings: An amount deposited in this scheme is counted for deduction under the INCOME TAX ACT under Section 80C and after maturity of this scheme whatever returns you get at that time will be completely tax-free. This is an excellent tax benefits facility which is hard to match by other investment options.
- Flexibility: even though This scheme has a lock-in period of 15 years, This scheme provides partial withdrawals and a loan facility for getting some liquidity to the account holder.
How to Open a Public Provident Fund (PPF) Account?
You can open a PPF account at any nationalized bank, some private banks, and post offices.
The process is as simple as the steps given below.
Step 1 :
First, you need to choose your desired bank branch whichever is near to you.
Step 2 :
After you choose your desired bank branch you need to visit over there and Fill out the PPF application form
Step 3:
After filling out the application form and duly signing attach the KYC documents like ID proof, address proof, and a passport-size photograph.
Step 4
Also, fill deposit receipt if you want to deposit cash in the PPF account or give your account payee a cheque for the initial deposit (minimum Rs. 500).
Step 5
Bank officials will verify your documents and open the PPF account and they will hand over the PPF passbook.
PPF Interest Rate History
| Years | Interest Rate |
| 1968-1986 | Fixed at 4.80% |
| 1986-2000 | Fixed at 12% |
| 2000-2001 | Reduced to 11% |
| 2001-2002 | Reduced to 9.50% |
| 2002-2003 | Reduced to 9.00% |
| 2003-2004 | Reduced to 8.00% |
| 2011-2012 | Increased to 8.60% |
| 2012-2013 | Reduced to 8.80% |
| 2013-2016 | Fixed at 8.70% |
| 2016-2017 (Q1) | Reduced to 8.10% |
| 2016-2017 (Q2) | Reduced to 8.00% |
| 2016-2017 (Q3) | Reduced to 7.90% |
| 2016-2017 (Q4) | Reduced to 8.00% |
| 2017-2018 (Q1) | Reduced to 7.90% |
| 2017-2018 (Q2) | Reduced to 7.80% |
| 2017-2018 (Q3) | Reduced to 7.80% |
| 2017-2018 (Q3) | Reduced to 7.80% |
| 2017-2018 (Q4) | Reduced to 7.60% |
| 2018-2019 (Q1) | Reduced to 7.60% |
| 2018-2019 (Q2) | Increased to 7.80% |
| 2018-2019 (Q3) | Increased to 8.00% |
| 2018-2019 (Q4) | Reduced to 7.90% |
| 2019-2020 (Q1) | Reduced to 7.90% |
| 2019-2020 (Q2) | Reduced to 7.90% |
| 2019-2020 (Q3) | Reduced to 7.90% |
| 2019-2020 (Q4) | Reduced to 7.90% |
| 2020-2021 (Q1) | Reduced to 7.10% |
| 2020-2021 (Q2) | Reduced to 7.10% |
| 2020-2021 (Q3) | Reduced to 7.10% |
| 2020-2021 (Q4) | Reduced to 7.10% |
| 2021-2022 (Q1) | Fixed at 7.10% |
| 2021-2022 (Q2) | Fixed at 7.10% |
| 2021-2022 (Q3) | Fixed at 7.10% |
| 2021-2022 (Q4) | Fixed at 7.10% |
| 2022-2023 (Q1) | Fixed at 7.10% |
| 2022-2023 (Q2) | Fixed at 7.10% |
| 2022-2023 (Q3) | Fixed at 7.10% |
| 2022-2023 (Q4) | Fixed at 7.10% |
| 2023-2024 (Q1) | Fixed at 7.10% |
| 2023-2024 (Q2) | Fixed at 7.10% |
| 2023-2024 (Q3) | Fixed at 7.10% |
| 2024-2025 (Q1) | Fixed at 7.10% |
How much will I get from PPF after 15 years?
Let’s take an example:
Suppose you are investing Rs 1,50,000 annually in PPF and we assume a constant interest rate of 7.10% per annum let’s calculate
The formula for calculating the maturity amount of PPF is given below
Where
A = Maturity amount
P = Annual investment
r = Annual interest rate (in decimal form)
n = Number of years
After using these values we can calculate the maturity amount.
As per the formula, you will get approximately Rs 40,68,209 after 15 years.
This calculation assumes that interest rate on PPF is constant throughout the period
FAQ on Public Provident Fund
1) Is PPF a good investment?
Yes. Investing in PPF is an idle investment strategy that gives benefits in the long run safely.
2)Is PPF better than FD?
Interest you earn on TAX Saving FD is taxable however Interest you earn on PPF is TAX Free. FD has having lock-in period of 5 years while PPF has a lock-in period of 15 years then if you agree with 15 year lock-in period the PPF can be a good choice to invest that FD.
3)What are the disadvantages of PPF?
- 15 years lock-in period
- Limitation for investment amount in a financial year
- The interest rate on PPF is variable hence returns are not guaranteed
- Restriction on withdrawal hence low liquidity available
4)Which is better, SIP or PPF?
PPF has tax-free guaranteed returns and long-term safety with 15 years lock in while SIP has higher returns and flexibility with market risk. both are good investment options but if you want to go with safety then PPF is good and if you want to take some risk then go with SIP.
5)Can I open 2 PPF accounts?
No. PPF allows only one PPF account to an individual in a lifetime.
6)Can PPF be deposited monthly?
Yes. You an deposit monthly in PPF but PPF has a maximum investment cap is Rs 1.50Lakh in a one financial year
7)Who Cannot invest in PPF?
- Non Resident Indian(NRI)
- HUF
- Foreign Citizens
8)Should I extend my PPF account after 15 years?
If you want continued TAX benefits, safe returns and long-term saving growth then you can extend your PPF account however if you need liquidity then you can withdraw money
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1. What Is Mutual Fund? | A Complete Guide 2024
2. How To Invest In Mutual Funds?
3. What Are The Types of Mutual Funds? | A Complete Guide 2024
