Public Provident Fund – Meaning, Features, and How to Invest in PPF?

Public Provident Fund (PPF) is a long-term government scheme introduced to encourage small savings. The scheme is risk-free as it pays fixed interest to the investors. It also offers tax benefits under Section 80C of the Income Tax Act 1961. It is suitable for investors looking for long-term risk-free investment alternatives. Read to find out more about the features and how to invest in PPF.

What is Public Provident Fund (PPF)?

PPF is a Government of India scheme introduced in 1968 to mobilise small savings and encourage long-term investing. The scheme pays a fixed interest of 7.1% per annum to the account holders, which is not taxable in the hands of investors. The tenure of the scheme is 15 years, which means the investment is locked-in until maturity. PPF is an excellent investment alternative for investors looking for a fixed return for the long term.

Features of Public Provident Fund (PPF)

Following are the features of PPF.

• Minimum and maximum investment: The minimum investment in PPF is Rs 500, and the maximum is Rs 1,50,000. Investments above Rs 1.5 lakhs will not earn any interest nor qualify for tax benefits.
• Deposit frequency: You must invest at least once a year in your PPF account to keep it active. If you do not invest even for a year, the account will turn inactive.
• Joint account: PPF can only be opened by one individual. The scheme doesn’t allow joint accounts.
• Interest: PPF pays a fixed interest of 7.1% per annum. The interest rate is decided by the government every quarter.
• Tenure: The tenure of the scheme is 15 years. You can also extend it in a block of 5 years as per your wish.
• Nomination: You can nominate a person for your PPF account. It can be done either at the time of opening the account or anytime during the tenure of the investment.
• Risk factor: Since it is a government of India scheme and pays fixed interest, the risk factor in the scheme is minimal. Investors looking to diversify their portfolio can consider PPF as an alternative.
• Tax benefit: The investment in PPF up to Rs 1.5 lakhs qualifies for tax deduction under Section 80C of the Income Tax Act, 1961. Since PPF falls under EEE (exempt exempt exempt) category, the interest and maturity proceeds are also exempt from tax.
• Withdrawal: The investment in PPF is locked in until maturity. However, you can partially withdraw the money after the sixth year (from the seventh year onwards).
• Loan against PPF: You can take a loan against your PPF investment between 3rd and 6th year of the investment tenure. The scheme gives a maximum of 25% of the total available amount, and the maximum tenure is three years. You can also take a second loan before the sixth year if you repay back the first loan fully.

Who can open a PPF account?

The following are the eligibility criteria to open a PPF account.

• All Indian citizens can open a PPF account.
• Minors can invest with the help of a legal guardian.
• Non-resident Indians (NRIs) cannot invest in PPF. However, if they have an existing account, it will remain active till maturity. Moreover, the account cannot be extended for a block of five years.
• Hindu Undivided Families (HUF) are not eligible to open a PPF account.

Documents required for PPF account

To open a PPF account, you will need to submit the following documents.

• Duly filled and signed PPF application form
• Passport size photographs
• Identity proof – PAN Card, Aadhar Card, Passport, Voter ID, Driving License
• Address proof – Aadhar Card, Passport, Driving License, utility bills
• Nominee declaration form

How to invest in PPF?

You can invest in PPF through offline and online modes.

The process to open a PPF account offline
To invest in PPF through offline mode, you will have to follow the steps below.

• First, go to the nearest post office or an authorised bank to collect the PPF application form. Having a savings account with the post office or the bank will make investing in PPF convenient.
• Second, submit all the documents mentioned above at the nearest post office or an authorised bank.
• Third, make the initial contribution of Rs 500 through cheque or cash.

Your PPF account will be opened, and you will receive a passbook containing all the important information, such as your PPF account number, branch name, account holder name, and balance.

The process to open a PPF account online

To open a PPF account online through a post office or a bank, you must have a savings account with them. Moreover, this account should have internet and mobile banking facilities activated. If you do not have it, then make sure you get it activated before you start the process of opening a PPF account.

Although the procedure varies across banks and post offices, the gist remains the same. The following steps will guide you to open a PPF account online.

• First, log in to your net banking facility and click on ‘Open PPF account’.
• Second, select ‘Self Account’ if you are opening the account for yourself. Else, select ‘Minor Account’ if you are opening it for a minor.
• Third, fill out the application form with all the necessary details.
• Fourth, pay the minimum investment amount of Rs 500 or more if you wish to invest more.
• Fifth, set up an auto-debit facility if you wish to, so you don’t forget to invest in our PPF account.
• Sixth, submit your application, and you will receive an OTP (one-time password) for verification.
• Seventh, enter the OTP and confirm your identity.

After completing the above steps, your PPF account will be created. You will receive a confirmation on your mobile and email regarding the same.

How to withdraw money from a PPF account?

You can withdraw money from your PPF account at the end of 15 years freely, along with the interest amount. However, if you want to withdraw the amount prematurely, there are certain rules.

Partial withdrawals are only allowed from the seventh year of account opening. You can withdraw only up to 50% of the amount in the account at the end of the fourth year. Moreover, the withdrawals can be made only once in a financial year.

Procedure for withdrawing money from the PPF account

To withdraw money completely or partially, you must follow the steps below.

• Firstly, get a withdrawal form (Form C) from the bank or post office where you opened the PPF account.
• Second, fill the Form C with all the necessary information. The form has three sections, which are the declaration section, office use section, and signature section. In the declaration section, you have to fill in your PPF account details, such as the account holder’s name, account number, and the number of years the account is active. In the next section, the post office or bank officials will fill in details such as the amount available for withdrawal and the amount sanctioned for withdrawal. Finally, in the last section, you must sign the form and provide your bank details.
• Lastly, you must submit the application at the bank or post office to get the money in your account.

Tax benefits of investing in PPF

PPF falls under the EEE category. Hence the investment, interest, and maturity proceeds are exempt from tax. An investment up to Rs 1.5 lakhs qualifies for tax deduction under section 80 C of the Income Tax Act, 1961. The interest and maturity proceeds are also tax-free upon maturity.

Loan against PPF scheme

You can avail a loan against your PPF account. According to the rules, you can take a loan between the 3rd and 6th year of account opening. The maximum amount of loan is 25% of the total amount available, and the maximum tenure is three years. You can also take a second loan before 6th year if the first loan is fully repaid.

Closure of the PPF account

To close your PPF account, you must wait for 15 years (until maturity) and then fill out Form C with all relevant information and submit it to the Post office or the bank through which you’ve invested in PPF.

You can also prematurely close your PPF account after five years after opening it. However, this is allowed only in certain circumstances. For example, if the account holder or the dependents are facing life-threatening sickness or you are paying for your higher education, you are changing your residential status. In all these cases, you can prematurely close the PPF account and take back your investment amount.

Banks that offer PPF scheme

Apart from post offices, the following banks are authorised to accept PPF investments.

• Axis Bank
• Bank of Baroda
• Bank of India
• Bank of Maharashtra
• Central Bank of India
• Dena Bank
• HDFC Bank
• ICICI Bank
• IDBI Bank
• Kotak Mahindra Bank
• Oriental Bank of Commerce
• Punjab National Bank
• State Bank of India
• Union Bank of India

Frequently Asked Questions

How much can you invest in PPF in one year?
The maximum investment in PPF account in a year is Rs 1.5 lakhs. If you invest more than this, you will not earn interest on it, and you also won’t enjoy tax benefits.

What is the right time for investing in PPF?
It is best to invest in PPF right at the start of a financial year. This is because you can earn interest on the investment throughout the year. If that is not possible, you can also invest in PPF before the 5th of every month to earn interest for the entire month.

What is the interest rate on PPF?
PPF interest rate is decided by the government every quarter. For the April -June 2023 quarter, the PPF interest rate is 7.1%.

Can you close the PPF account before maturity?
Yes, you can close your PPF account prematurely. However, it is allowed only in certain circumstances. If the account holder or the dependents are facing life-threatening sickness, or you are paying for your higher education, you are changing your residential status; only in these cases can you close your PPF account prematurely.

How to activate an inactive PPF account?
To reactivate your inactive PPF account, you must write a written letter to the bank or post office stating the reason for the account being inactive and requesting to reactivate the PPF account. Then, you must pay a minimum of Rs 500 for each year you’ve missed the investment, along with a penalty of Rs 50 per inactive year. After paying the dues, the bank or the post office will reactivate your PPF account.

How to withdraw money from a PPF account online?
To withdraw money from your PPF account online, you must log in to your net banking portal, download form C, and submit the filled form online.

Is PPF a good investment?
PPF is an excellent investment option for investors looking to earn a fixed interest for a long duration. It also helps in diversifying a portfolio and also helps in saving tax on the investment.

What is the age limit for opening a PPF account?
There is no minimum age to open a PPF account. All Indian citizens can invest in PPF. In the case of minors below the age of 18, a legal guardian can open the PPF account on their behalf.

How many times am I allowed to extend the tenure in the blocks of five years?
You can extend your PPF account in blocks of five years an infinite number of times. However, the extension is only possible after you complete the tenure of five years.