public provident fund

Public Provident Fund (PPF) scheme is a long term investment option which offers an attractive rate of interest and returns on the amount invested. The interest earned and the returns are not taxable under income Tax. One has to open an PPF account under this scheme and the amount deposited during a year will be claimed under section 80C deductions.

How to open a PPF account?

A PPF account can be opened with either a Post Office or with any nationalized bank like the State Bank of India or Punjab National Bank, etc. These days, even certain private banks like ICICI, HDFC and Axis Bank among others are authorized to provide this facility. You need to submit the duly filled application form along with the required documents i.e. the KYC documents like identity proof, address proof, and signature proof. Post submitting these documents you can deposit a prescribed amount towards the opening of the account.

What is the interest rate on PPF?

The current interest rate is 7.1% p.a. (for the quarter 1 April 2020 to 30 June 2020, prior to this it was 7.9% p.a.) that is compounded annually. The Finance Ministry set the interest rate every year, which is paid on 31st March. The interest is calculated on the lowest balance between the close of the fifth day and last day of every month.

Essential features of PPF :

  • Tenure: The PPF has a minimum tenure of 15 years, which can be extended in blocks of 5 years as per your wish.
  • Investment Limits: PPF allows a minimum investment of Rs 500 and a maximum of Rs 1.5 lakh for each financial year. Investments can be made in lump sum or in a maximum of 12 instalments.
  • Opening Balance: The account can be opened with just Rs 100. Annual investments above Rs 1.5 lakh will not earn interest and will not be eligible for tax saving.
  • Deposit Frequency: Deposits into a PPF account has to be made at least once every year for 15 years.
  • Mode of deposit: The deposit into a PPF account can be made either by way of cash, cheque, Demand Draft or through an online fund transfer.
  • Nomination: A PPF account holder can designate a nominee for his account either at the time of opening the account or subsequently.
  • Joint accounts: A PPF account can be held only in the name of one individual. Opening an account in joint names is not allowed.
  • Risk factor: Since PPF is backed by the Indian government, it offers guaranteed, risk-free returns as well as complete capital protection. The element of risk involved in holding a PPF account is minimal.
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