Public provident fund is a popular investment scheme among investors because of its multiple investor-friendly features and benefits. It is for individuals who want to earn stable returns with a low risk appetite. Since this plan is mandated by the government, it is backed up with guaranteed returns to protect the financial needs of the masses in India. Further, invested funds in the PPF account are not market-linked. Investors can also undertake the public provident fund regime to diversify their financial and investment portfolio. At times of any financial downswing, PPF accounts can helpful.

Features of a PPF Account

Principal amount

Investment in a PPF account has to be made every year to ensure that the account remains active.

Minimum of Rs. 500 and a Maximum of Rs. 1.5 Lakh can be invested in a provident fund scheme annually. This investment can be undertaken in a lumpsum or installment basis. However, an individual is eligible for only 12 instalments into a PPF account in one financial year.

Investment tenure

A PPF account has a lock-in period of 15 years on investment, before which funds cannot be withdrawn completely. An investor can choose to extend this tenure by 5 years after lock-in period is over if required.

Loan against investment

Public provident funds provide the benefit of availing loans against the investment amount. However, the loan will only be granted if it is taken at any time from the beginning of 3rd year till the end of the 6th year from the date of activation of the account.

Only 25% or less of the total amount available in the account can be claimed for this purpose. You will have to repay the loan in 36 months.

Eligibility Criteria

Indian citizens residing in the country are eligible to open a PPF account in his/her name. A Public provident fund account can also be opened in the name of minor, provided it is operated by their parent.

Non-residential Indians are not permitted to open a new PPF account. However, any existing account in their name remains active till the completion of tenure but cannot be extended for 5 years – a benefit available to Indian residents.

Interest On a PPF Account

The interest payable on public provident fund scheme is determined by the Central Government of India. It aims to provide higher interest than regular accounts maintained by various commercial banks in the country.

Interest rates currently payable on such accounts stands at 7.1%, and is subject to quarterly updates at the discretion of the government.

Tax Benefits

The principal value of investment in PPF can be claimed for Tax Deduction under Section 80C of the Income Tax Act of 1961. However, it should be kept in mind that the total principal that can be invested in one financial year cannot exceed Rs. 1.5 Lakh. Also, this tax benefit is available for all Section 80C investments cumulatively.

The total interest accrued on PPF investment is also exempt from Tax.

So, the entire amount redeemed from a PPF account upon maturity is not subject to taxation. This is what makes the public provident fund scheme attractive to many investors in India.

Withdrawal 

There are certain conditions that an individual must fulfil in case he/she wants to withdraw funds from the PPF account.

Lock-in period of 15 years is imposed on the principal amount invested. However, an individual can withdraw in case of emergencies and withdrawn amount can be used only for specified reasons. However, this amount can only be withdrawn after the completion of 5 years of activation of the account.

Amount withdrawn should be lower of the following

Up to 50% of the total balance that stands at your credit at the end of the 4th financial year

or at the end of the preceding year.

Investors should note that funds invested in a PPF account cannot be liquidated before the completion of the maturity period.

How To Open a PPF Account

Both offline and online procedures are available for an individual provided he/she meets requisite parameters mentioned in the eligibility criteria. Activating PPF online can be done by visiting the portal of a chosen bank or post office.

The following documents have to be produced at the time of activation of a public provident fund account –

KYC documents verifying the identity of an individual, such as Aadhaar, Voter ID, Driver’s License, etc.

PAN card.

Residential address proof.

Form for nominee declaration.

Passport-sized photograph

Premature Closure

Premature closure for your PPF account is permitted but only under certain conditions. The very first condition is that your PPF account should have completed at least 5 years from the date of account opening.

 If you close your account prematurely, you will receive 1% lower interest than the prevailing rate.

If the account holder, his/her parents, his/her dependent children, his/her spouse is suffering from a life-threatening disease. Medical reports and relevant documents need to be submitted.

If the account holder needs funds for higher education. Relevant documents such as fee receipts and admission confirmation will be required.

If the residency status changes. Documents required here are proof of a change in residency, a copy of passport, visa, income tax returns.