PPF - Public Provident Fund

The PPF is a government-backed savings scheme that allows individuals to invest money with the assurance of safety, a decent rate of return, and tax exemptions. It is best suited for risk-averse investors seeking steady, long-term growth of capital.

The Public Provident Fund offers several investor-friendly features that make it a standout choice for long-term savings:

• Attractive Interest Rate: 7.1% per annum for Q1 FY 2025-26, compounded annually, calculated on the lowest balance between the 5th and last day of each month.
• Investment Limits: Minimum ₹500, maximum ₹1.5 lakh per financial year, with up to 12 deposits allowed annually.
• Tenure: 15-year lock-in period, extendable in 5-year blocks post-maturity.
• Tax Benefits: Falls under EEE category—deposits deductible under Section 80C, interest and maturity amounts tax-free.
• Loan Facility: Available from the 3rd to 6th year, up to 25% of the balance from two years prior.
• Partial Withdrawal: Allowed after the 6th year, up to 50% of the balance at the end of the 4th year or previous year.
• Nomination: Option to nominate one or more beneficiaries for smooth fund transfer in case of the account holder’s demise.
• Transferability: Accounts can be transferred between authorized banks or post offices.

These features make PPF a secure and flexible option for building a retirement corpus or meeting other financial goals

Note: The rate is revised quarterly by the Ministry of Finance.

The Public Provident Fund is accessible to a wide range of individuals, with the following eligibility criteria:

• Indian Citizens: Any resident Indian can open a PPF account for themselves.
• Minors: Parents or guardians can open a PPF account on behalf of a minor child. Only one account per minor is allowed.
• One Account Rule: An individual can have only one PPF account in their name, except when opening an account for a minor.
• Ineligible Entities: Non-Resident Indians (NRIs) and Hindu Undivided Families (HUFs) cannot open new PPF accounts. Existing accounts of NRIs can continue until maturity but cannot be extended.

PPF is an excellent option for parents starting accounts for newborns or young professionals beginning their savings journey.

Opening a Public Provident Fund account is straightforward, with options for both online and offline processes. Here’s how:

Online Process

• Step 1: Log in to your internet banking or mobile banking platform (e.g., SBI, ICICI, HDFC, or Bank of Baroda).
• Step 2: Navigate to the ‘Public Provident Fund’ or ‘PPF Accounts’ section and select ‘Open Now.’
• Step 3: Enter bank account details for funding the PPF and your PAN number.
• Step 4: Verify your Aadhaar number. If linked, generate an OTP; otherwise, update Aadhaar online.
• Step 5: E-sign with Aadhaar OTP, and your PPF account is created instantly with the account number displayed.

Offline Process

• Step 1: Visit a post office or authorized bank branch (e.g., SBI, PNB, ICICI, HDFC).
• Step 2: Fill out the PPF account opening form and submit KYC documents (Aadhaar, PAN, Voter ID, or Driving License).
• Step 3: Deposit a minimum of ₹500 to activate the account.
• Step 4: Receive a PPF passbook containing account details, balance, and transaction history.

Note: Set up standing instructions for automatic deposits to ensure regular contributions.

You can open a PPF account at:

• Public and private sector banks like SBI, ICICI, HDFC, etc.
• India Post Offices.
• Online portals of banks that support PPF.

The Public Provident Fund is renowned for its tax advantages, making it a top choice for tax-efficient savings:

• Section 80C Deduction: Annual contributions up to ₹1.5 lakh are deductible under Section 80C of the Income Tax Act.
• Tax-Free Interest: Interest earned (currently 7.1% p.a.) is exempt from income tax.
• Tax-Free Maturity: The entire maturity amount, including principal and interest, is tax-free.

This Exempt-Exempt-Exempt (EEE) status allows investors to save up to ₹46,800 annually in taxes, depending on their tax bracket. PPF’s tax benefits, combined with its safety, make it a powerful tool for long-term wealth creation.

The Public Provident Fund has a 15-year lock-in period, but partial and premature withdrawals are allowed under specific conditions:

• Partial Withdrawal: Available after the 6th year, up to 50% of the balance at the end of the 4th year or the previous year, whichever is lower. Submit Form C with your PPF account number and bank details.
• Premature Closure: Allowed after 5 years for specific reasons (e.g., medical emergencies, higher education, or change in residency status). A 1% interest penalty applies from the account opening date.
• Post-Maturity Withdrawal: After 15 years, the full amount can be withdrawn tax-free. For extended accounts without contributions, one withdrawal per year is allowed; with contributions, up to 60% of the balance at the extension start can be withdrawn.

Note: A copy of the PPF passbook must accompany withdrawal applications.

PPF account holders can avail loans against their account balance from the 3rd to 6th financial year, providing liquidity for short-term needs:

• Loan Amount: Up to 25% of the balance at the end of the 2nd year preceding the loan application year.
• Interest Rate: 1% above the prevailing PPF interest rate (e.g., 8.1% if PPF rate is 7.1%).
• Repayment: Must be repaid within 36 months. A second loan is allowed if the first is fully repaid.

Loans are not available after the 6th year or for inactive accounts. This feature makes PPF a flexible option for emergency funding.