Public Provident Fund or PPF is a popular saving-cum-investment scheme in India, introduced in 1968 by the Finance Ministry’s National Savings Institute. It allows you to create your corpus for retirement while saving on taxes.
So, if you are in search of a safe savings option while earning guaranteed returns and saving taxes, PPF can be a wise option. Moreover, you can also have an estimate of the returns from PPF using a Public Provident Fund calculator. To know about the scheme in detail, please keep reading.
What Is a Public Provident Fund (PPF) Account?
Public Provident Fund (PPF) is a long-term investment plan that offers a decent interest rate and attractive investment return. Moreover, the returns and the interests you receive from your PPF account are free of tax.
According to Section 80C of the Income Tax Act, if you open a PPF account, the amount you invest annually will be deducted from your taxable income. It is a safe saving-cum-investment vehicle backed by the Indian government to provide financial security to people post-retirement.
This long-term investment horizon is widely used in India today, mainly by employees of unorganised sectors and self-employed individuals.
Features of PPF Account
To understand how PPF works, you must understand its features well. Here are the key ones:
- Tenure: The maturity period of the PPF account is 15 years, after which you can encash the total amount, which will be tax-free. However, you can also extend this period in blocks of 5 years as per your plan.
- Tax Benefit: The interest and maturity amount in a PPF account is exempted from tax under Section 80C of the Income Tax Act, 1961.
- Investment Limits: The minimum investment amount per year is Rs. 500, and the maximum limit is Rs. 1.5 Lakhs. You can either invest in a lump sum or through instalments (deposits should be a multiple of Rs. 50).
- Opening Balance: You can open an account with a minimum deposit of Rs. 100.
- Deposit Frequency: Deposits should be made at least once per year for 15 consecutive years after opening the PPF account.
- Mode of Deposit: Deposits can be made by cash, cheque, online transfer, or demand draft.
- Low-Risk Factor: PPF is a low-risk investment account since it is backed by the government and offers capital protection and fixed returns.
- Partial Withdrawal: PPF allows you to make a partial withdrawal from the 6th year of investment.
What Is the Interest Rate on PPF?
The current interest rate of PPF is 7.1% per annum. It is compounded annually. Note that the rate of interest is not fixed but is set by the Finance Ministry of India, mainly quarterly.
The interest of PPF is calculated on a monthly basis on the lowest balance between the 5th day and the last day of every month. However, the total annual interest is added back at the end of the year. Therefore, you have to make the deposit before the 5th of every month to earn the interest.
To have a clearer idea about how much returns to expect on your investment amount, you can use the Public Provident Fund calculator.
PPF Account Eligibility Criteria
Anyone can open a PPF account for themselves or on behalf of a minor. Here are the eligibility criteria for a PPF account:
- You have to have Indian Citizenship.
- You can only have a single account under your name, but open the second one under a minor’s name.
- NRIs and Hindu Joint Families (joint accounts) cannot open a PPF account. However, in case they already have an existing account, it will remain active for 15 years but will not be eligible for a five-year block extension.
Loan against PPF
A Public Provident Fund account allows you to secure a loan between the first and sixth years of investment. However, the maximum amount you can secure will be 25% of the amount available in your account.
Furthermore, the tenure of the loan against PPF is 36 months, within which you have to complete the repayment. If you successfully repay the loan rapidly before the year, you will be eligible for a second loan.
Savings Accounts Other than PPF
Apart from a PPF account, you can also invest in several other savings schemes to broaden your investment horizon. You can select from some of the popular plans such as:
- Fixed Deposits (FD)
Fixed deposit accounts are the safest investment options, where you can make deposits at your convenience. It offers flexibility in terms of tenure and interest pay-out frequency.
This is a better alternative plan than a bank savings account due to the higher interest rate along with liquidity. You can also withdraw the money before the maturity date and reinvest it to receive a higher return at the end of the tenure.
However, the interests in FD are taxable, and if the payments exceed Rs. 40,000, they will be subjected to TDS.
Therefore, before investing, you can determine the interest you can get on a specific amount using an FD monthly interest calculator.
- Equity-Linked Savings Scheme (ELSS)
This is a savings fund similar to mutual funds. It also offers tax benefits up to Rs. 1.5 Lakhs.
This scheme also offers you exposure to the equity market, therefore opening the door for higher returns with a minimum investment of Rs. 500.
Moreover, you can also determine the potential returns from your investment based on the type of investment, i.e. SIP or lump sum, using an ELSS Investments calculator.
Broadly speaking, a PPF account can be a good savings and investment tool if you are looking for secure and guaranteed returns. Moreover, you can use this scheme to secure your post-retirement days financially, especially if you do not have an Employee Provident Fund.
Therefore, if you are planning on opening a PPF account, make sure to check for eligibility and other necessary information. You can also calculate an estimated return on your desired investment amount by using the PPF monthly interest calculator beforehand.
