Public Provident Fund
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The Financial Planning Edition Issue Date: February 19, 2013 1. PPF - a government backed long term small savings scheme
Public Provident Fund (PPF) is a scheme of the Central Government, framed under the PPF Act of 1968. Briefly, the PPF is a government backed, long term small savings scheme which was initially started by the Government because it wanted to provide retirement security to self-employed individuals and workers in the unorganized sector.
It is today the most popular investment made by Indian citizens. If you are keen on a safe investment, a decent rate of return, tax benefits (deduction and tax free interest) and have a long term investment horizon, then the PPF is for you. It is a disciplined investment avenue as your money is blocked for 15 years.
2. How do I open a PPF account? What should I keep in mind when opening my PPF account?
Head over to your nearest State Bank of India branch, or a branch of any of State Bank’s subsidiaries. You can also open an account in select nationalized banks, and the post office. Fill in the form, attach a photograph, state your PAN Number, and you’re done. Once your formalities are completed, you will receive a pass book which will record all your PPF transactions.
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At any point in your life, you are allowed to have only 1 PPF account in your name. You can also have an account in the name of a minor child of whom you are the parent / guardian. However that will be the child’s account, you will simply be the guardian. You can never have a joint account.
If at any time it is seen that you have more than 1 account in your own name, the second account will be deactivated, and only your principal will be returned to you.
If you have a General provident Fund account, or an Employees Provident Fund account, you can still have a PPF account – there is no restriction.
3. Can an NRI open a PPF account?
The rule of 25th July, 2003 states that ‘Non Resident Indians are not eligible to open an account under the PPF Scheme’. However ‘Provided that if a resident who subsequently becomes a Non Resident during the currency of the maturity period prescribed under the PPF scheme may continue to subscribe to the Fund till its maturity, on a Non Repatriation Basis.’
So if you open it as an RI, and during the 15 year tenure become an NRI, you can continue to invest, but on a non-repatriable basis.
4. When is the best time to invest in PPF account?
The best time to invest is between the 1st and the 5th of any month, preferably April each year. Interest is calculated for the calendar month on the lowest balance at credit of your account, between the close of the 5th day and the end of the month, and is credited at the end of every year.
5. Is a Loan against PPF account allowed?
Yes loan facility is available against a PPF account. The first loan can be taken in the third year of opening the account i.e., if the account is opened during the year 2010-11, the first loan can be taken during the year 2012-2013. The loan amount will be restricted to 25% of the balance including interest for the year 2010-11 in the account as on 31/3/2011. The loan must be repaid in a maximum of 36 EMIs. You can take a second loan against your PPF account before the end of your sixth financial year, but your second loan can be taken only once your first loan is fully settled.
6. Are withdrawals from PPF account allowed?
Any time after the expiry of the 5th year from the date that the initial subscription is made, you become eligible to withdraw an amount of not more than 50% of the previous year’s balance or of the 4th year immediately preceding the year of withdrawal, whichever is less. If you have taken any loan on your PPF, this also gets factored in and reduces your balance. You cannot make more than a single withdrawal in the year. You need to apply with Form C for any withdrawals.
7. What happens after PPF account matures?
You have 3 choices.
Either you can withdraw your maturity amount, or you can extend your account by a 5 year block, as many times as you want and make fresh contributions, or you can extend the account without making any further contributions, and continue to earn interest on it every year.
If you decide to withdraw your money, your maturity value is exempt from tax.
If you decide to extend your account and continue making fresh contributions, you can extend it for a block of 5 years at a time, as many times as you want, you can also make withdrawals from the account, up to 60% of the account balance that was there at the beginning of the extended period. Just remember, if you choose to extend your account, submit the necessary documentation for extension before one year passes from the maturity date.
If you choose to extend your account without making any fresh contributions, you can do so. In this case, any amount can be withdrawn without any restriction; however you can only withdraw once per year. The balance will continue to earn interest till it is withdrawn.------------------------------ - Have India's Mutual Funds Failed You? ------------------------------
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