PPF – Public Provident Fund | Full-Form and How to Open PPF Account?

PPF is a long term investment. The full form of PPF is a public provident fund. Its benefits are it is risk-free and tax-free. Also, PPF besides NPS and sukanya smriddhi yojna is the only product that qualifies for EEE. But with that, it also has its limitation. So in this article, we will be talking in detail about the full form of PPF accounts such as what is a public provident fund, the features of the PPF account, how to open a PPF account, and many more things.

What is PPF Account

The full form of PPF is a public provident fund. As the full form of PPF suggests it is one of the great investment options for the public. It is one of the long term savings scheme. It is launched by the national savings institute in the year 1968. The motive of the scheme was to encourage people to savings and investments. It is also one of the few investments where you have zero risk and high returns. Additionally, you also get tax benefits on it. To know about the business’s current account in detail click here.

Features of PPF Account

Whenever we thought about investing the first thing that comes to our mind is PPF investing. And there is a huge demand for public provident fund investment. One more fact about the public provident fund is it has zero risk and high interest. But, before opening a public provident fund account one should know the features of this investment, which are discussed below.

Eligibility

• Any resident individual Indian is eligible to open a public provident fund account.
• One person can open only one account. That means, if you have opened a public provident fund account in one bank, you can not open another public provident fund account in another bank.
• Although, you can transfer a public provident fund account from one bank to another.
• You can also open a public provident fund account for minors. But the account can only be operated by their parents or guardian.
• NRI could not open a public provident fund account.

How to Deposit?

• You can deposit a minimum of Rs 500-/ in a financial year.
• And maximum Rs 150000-/ per financial year. If you deposit more than the maximum amount, then you will not get interested in it.
• If you are operating a minors account and your own account. In this case, also, you can deposit a maximum of Rs 150000-/ combine in both accounts.
• You can deposit this money in monthly installments, quarterly installments, half-yearly installments, and also annually.
• You can do unlimited installments per financial year.
• And you can deposit this money by cash, cheque, demand draft, or online transfer.

Maturity Period

• The lock-in period for the PPF account is 15 years.
• And further, you also get an extension of 5 years. Due to which you can also extend your lock-in period to 5 years.
• The 15 lock-in period is your full 15 financial years. That means if you have opened a PPF account on 1 July 19 then 2019 year cannot be counted as a financial year. And your actual period will start on 1 April 2020 – 31 March 2020.

Interest Rate

• On today’s date, you get an interest rate of 7.1%. But the interest rate is not fixed, it fluctuated. And its fluctuation depends on the market.
• And this interest rate is decided by the central government every quarterly.
• The interest rate is calculated as the monthly compounding.

Premature Withdrawal

• If there is an emergency and you require money before the completion of the lock-in period that is 15 years.
• In that case, you can withdraw money within 15 years in two ways.

Loans

• You can take loans from the 3rd to 6th financial year from the opening of your account.
• The interest charged in this loan is your PPF intedrest+1% extra.
• You have to do repayment of this loan within 36 months.
• If you are unable to do the repayment of the loan within 36 months, then the interest rate will be 6% extra.
• To know in detail about the government loan scheme for small businesses in India click here.

Partial Withdrawal

• You can use this option if you required money from the 7th financial year onwards.
• You can only use this option once in a financial year.

Tax Benefits

• As we discussed above that it is one of the three schemes which qualifies for EEE, which is exempt-exempt-exempt.
• That means your investments get benefits of tax in three ways.
• Exemption 1 – There is no tax under-invested amount under section 80C. That means, if you invest a maximum of Rs 1.50 lakh in a year, you could save tax up to Rs 46,800-/. So your actual invested amount becomes Rs 1.03 lakh.
• Exemption 2 – You do not have to pay any tax on your return. On the other hand, in FDs, you have to pay tax on your returns.
• Exemption 3 – Similarly you also do not have to pay tax on your maturity amount.

Immunity against Attachment

• If you have taken some loan from the bank, and now you are unable to pay the EMIs of that loan. In that case, the bank will seize your property, mutual funds, or FDs to cover the loan amount.
• But the bank could not seize your public provident fund account as the immunity against attachment.
• In conclusion, in any condition, the government of India or any government body could not seize your public provident fund account.

Advantages and Disadvantages of PPF

Before investing in a PPF account you should know the advantages and disadvantages of a PPF account. The following points will help you to understand and do a better evaluation of the PPF account.

Advantages of PPF

• It is a risk-free investment because it is backed by the government.
• It is a tax-free investment. That means there is no tax on the interest you earn on this.
• As per section 80C, you also get a tax rebate. That means you can invest Rs 500-/ to Rs 150000-/, and on that investment, you can get a tax rebate.
• The interest rate is higher compare to FD or any other investment.
• Additionally, you do not have to pay tax on your maturity amount.
• The partial withdrawal facility is also available in the PPF account.
• You can also avail loan by keeping your PPF account as collateral.

Disadvantages of PPF Account

• You can get a partial withdrawal facility only one time in a year.
• You can only avail loan against PPF if the time period of your PPF account is more than two years.
• The liquidity in the PPF account is very less compare to other options.
• The lock-in period is comparatively more compare to other options.
• There is no periodic income. That means you can not get any interest opposite to any bank FD or post office MIS. The full form of MIS in the PPF account is a management information system.
• There is an unstable interest rate. The interest rate changes every quarter according to the market.
• HUFs, NRIs, Trusts cannot invest in PPF.
• You can only open a PPF account singly.
• You can only invest Rs 1.50 lakh per year in your PPF account.
• The post office where the maximum number of people open a PPF account does not have online investment options.

Points to Consider while Opening PPF Account

• PPF account can not be attached to any dept or liability payment.
• If you are unable to invest a minimum of Rs 500-/ per financial year, then your PPF account will be inactive.
• Although, you can revive your account by giving Rs 50-/ per financial year penalty and Rs 500-/ per financial year of default.
• You have to pay 1% of the penalty on your interest rate while doing premature closure.
• You can also open a PPF account on behalf of any unsounded person.
• The premature closure of your PPF account can only be done in three conditions.

1. Your public provident fund account should have complete 5 financial years.
2. If there is any serious illness of family members.
3. For higher education of the account holder.
4. If the account holder has settled in another country.

Conclusion

The full form of the PPF account is a public provident fund. If you have not open any PPF account yet, I recommend you to open at least one. Because it will definitely help you in long term financial planning. On the other hand, there is no risk here and also you get tax free return. If you have any long term financial planning such as serious illness, marriage, or higher education, it will definitely help you in this.

FAQ Regarding PPF Account

Editor’s Note | PPF Account

The COVID-19 pandemic has affected every sector including the financial sector in the world. India is also one of the countries which are severely affected by the COVID-19 pandemic. So let’s talk about the effect of COVID-19 on PPF account in India. COVID-19 has severely affected the PPF account, as the interest rate on public provident fund has decreased from 7.9% to 7.1%. And also the government has decided that you can do unlimited installments per financial year.