What is Public Provident Fund (PPF)

What is PPF?

The PPF full form is Public Provident Fund, a long-term government-backed savings scheme introduced in the year 1968. The PPF account is open to all Indian residents and aims to encourage small savings with attractive interest rates. The PPF meaning lies in its design as a safe option where your principal amount is protected, and interest is compounded annually to enhance your savings over time.

For anyone wondering what is PPF account, it is a trusted and effective tool for securing your future while enjoying tax benefits and peace of mind. When you open a PPF account, you can deposit money regularly, either monthly or yearly, at your convenience. With guaranteed returns and tax benefits, this scheme not only helps you save money but also lets it grow over time with compounded interest. This makes it a favorite for those planning retirement or seeking stable long-term returns.

Importance of a PPF Account

Still, wondering why you should consider opening a PPF account? Well, its importance lies in its ability to provide a safe and reliable investment option for people who have a low risk appetite. Since this scheme is backed by the government, it guarantees returns, making it a secure way to save and grow your money. Also, the funds in a PPF account are not linked to the ups and downs of the stock market, assuring steady growth over time.

A PPF account is also crucial in diversifying your financial portfolio. During difficult economic times or business downturns, it offers stability with consistent annual returns. This makes it a risk-free choice for anyone who wishes to secure their financial future and has retirement plans to fulfil.

Features of a PPF Account

PPF offers a safe and secure way to save for the future, with features that make it a favorite among investors. Some of those features include:

Investment Tenure

The tenure of a PPF account is 15 years, making it ideal for long-term savings and financial planning. If you want to continue benefiting from the account after this period, you can extend it in blocks of 5 years at a time.

Principal Amount

The minimum investment amount for PPF starts as little as ₹500 annually, making it accessible to all income groups. You can deposit up to ₹1.5 lakh in a financial year. These investments can be made in a lump sum or spread across a maximum of 12 installments per year. If you deposit more than ₹1.5 lakh in a year, the excess will not earn interest or qualify for tax benefits. The good part is that you can open an account with just ₹100, ensuring a low barrier to entry.

Loan against Investment

You can avail of a loan from the 3rd financial year up to the 6th financial year of opening the account. The loan amount can be up to 25% of the balance in your PPF account at the end of the second year preceding the year in which you apply for the loan. This is a useful feature for emergencies, as the loan comes at a lower interest rate compared to most personal loans.

Eligibility Criteria

Wondering who can open a PPF account? Well, any resident Indian individual! However, a PPF account is for individuals only; joint accounts are not allowed. Parents can open accounts for their minor children, but the combined investment limit for both accounts is still ₹1.5 lakh per year. Non-resident Indians (NRIs) and Hindu Undivided Families (HUFs) are also not eligible to open a PPF account.

Interest on a PPF Account

The interest rate on PPF is set by the Government of India and is revised quarterly. The interest earned is guaranteed and risk-free, making it a secure option for savings. Also, both the interest earned and the maturity amount are completely tax-free under Section 80C of the Income Tax Act.

When to Invest in a PPF Account?

You can open a PPF account anytime during the year, but the earlier you start, the better. Investing in a PPF early in your financial journey helps you take full advantage of the power of compounding over the years. This means your money grows faster the longer it stays invested.

But, just knowing what is public provident fund is not enough. Consider these points when starting your PPF investments:

• Since PPF offers tax-free interest and has a maximum annual contribution limit, starting early allows you to make consistent contributions and maximize your returns over time.
• There is no upper age limit to open a PPF account. So, even if you are closer to retirement, a PPF account can serve as a safe, tax-free savings option for your golden years.
• Once your PPF account matures (after 15 years), you can extend it in blocks of five years, ensuring long-term financial growth.

How to Open a PPF Account?

Depending on your preference, you can open a PPF account offline or online. For the online process, visit the website of your chosen bank or post office and follow the instructions to activate your account. If you want to follow the offline process, all you need to do is approach your nearest post office or bank branch and fill out the application form. However, under both online and offline processes, you will need to provide the following documents:

• KYC Documents: These verify your identity. Common documents include Aadhaar, Voter ID, Driver’s License, etc.
• PAN Card: To comply with tax regulations.
• Proof of Address: A recent utility bill or rent agreement.
• Nominee Declaration: To name a beneficiary who will receive the fund in case of your demise.
• Passport-sized Photograph: For your account records.

Once your account is activated, you can start making deposits into your PPF account and track its growth over time, with a lock-in period of 15 years.

PPF – Tax Benefits

By now, you already briefly know that investing in PPF offers tax benefits under Section 80C of the Income Tax Act 1961. Let us now understand a little in depth. The amount that you invest in a PPF account is tax-deductible up to ₹1.5 lakh per year. Moreover, the interest earned on your PPF investment is completely tax-free, and the amount you receive at maturity is also not subject to any tax. This makes public provident funds a popular and attractive investment option for many in India.

How to Withdraw Money from a PPF Account?

You can withdraw money from your PPF account after it reaches maturity, which is 15 years. At maturity, you can withdraw the entire balance, including the interest, and close the account. If you need funds earlier, you can make partial withdrawals starting from the 6th year. You can withdraw up to 50% of the balance at the end of the 4th year or the preceding year, whichever is lower. But remember that partial withdrawals can only be made once a year.

Loan Against PPF Scheme

A loan against PPF allows you to borrow money using your PPF balance as collateral. You can take a loan between the 3rd and 5th year of your PPF account. The loan amount can be up to 25% of the balance in your PPF account from the end of the second year before applying for the loan. If you repay the first loan fully, you can take a second loan before the 6th year. Interesting right?

What is Form C in PPF

Form C is the document required for partial withdrawals from a PPF account. It is divided into three sections that provide the necessary details for processing your withdrawal request.

Section 1

In this section, you need to provide your PPF account number, the amount you wish to withdraw, and how many years have passed since your account was first opened. This helps to process your request accurately.

Section 2

This section is for office use, where details about your PPF account are filled in, such as the account opening date, total balance, previous withdrawals, available withdrawal amount, and the authorized withdrawal amount. It also includes the signature of the person in charge, usually the service manager.

Section 3

Here, you need to provide information about the bank where the withdrawal funds should be credited or the bank to issue a cheque or demand draft. You must also submit a copy of your PPF passbook along with the application for verification.

Conclusion

The PPF is more than just a savings tool; it is a step toward financial security and disciplined investment. With guaranteed returns, tax benefits, and flexible options, it is an ideal choice for anyone looking to grow their wealth over time. So, if you are still wondering, “what is public provident fund?” – it is your ticket to a safer and more prosperous future.

By using a PPF investment calculator, you can easily estimate the potential returns on your investment and plan your savings more effectively. So, why wait? Open your PPF account today and secure your future now!

FAQs on What is Public Provident Fund