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Equity Fund

Introduction 

The Public Provident Fund (PPF), a cornerstone of prudent financial planning, was introduced by the Government of India with the aim of fostering a culture of systematic savings. Widely embraced by the masses, PPF stands out as a long-term investment scheme renowned for its attractive interest rates, robust returns, and a host of safety features.

 

Enshrined with the added advantage of tax exemption under Section 80C of the Income Tax Act, PPF allows individuals to channelise their savings while enjoying fiscal benefit, offering a compelling avenue for those seeking both financial growth and tax efficiency.

 

In the following Blog, we will delve deeper into the various facets of the Public Provident Fund, unravelling its nuances and elucidating how it stands as a formidable savings option, catering to the diverse financial needs of individuals across sectors.

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What is the Public Provident Fund?

The Public Provident Fund (PPF) is a popular long-term savings and investment scheme introduced by the Indian government. It encourages regular savings while providing attractive returns and tax benefits.

What are the features of PPF?

  1. Tenure: PPF has a fixed tenure of 15 years. However, account holders can extend it in the block of 5 years after maturity.

  2. Investment Amount: Investors can deposit a minimum of ₹500 and a maximum of ₹1.5 lakh per financial year. The contribution can be made in one or multiple instalments.

  3. Tax Benefits: PPF enjoys EEE (Exempt, Exempt, Exempt) tax status. Contributions to PPF are eligible for a deduction under Section 80C of the Income Tax Act. The interest earned and the maturity amount are tax-free.

  4. Interest Rate:  The government determines the interest on PPF which is compounded annually. The interest rate is subject to change periodically. Currently 7.1% per annum

  5. Flexible Contribution Period: Account holders can choose to contribute to their PPF account for a period of 15 years. After maturity, they can extend it in blocks of 5 years.

  6. Withdrawals: Partial withdrawals are allowed after completing the 7th year of the PPF account. The amount that can be withdrawn is subject to certain conditions and limits.

Eligibility Criteria to Open a PPF Account

The eligibility criteria to open a Public Provident Fund (PPF) account in India are as follows:

1. PPF accounts can be opened only by resident individuals. Non-resident individuals are not eligible to open a PPF account.

2. Any resident individual can open a PPF account. There is no age restriction for opening a new account. Minors can also have a PPF account with a guardian.

3. An individual is allowed to open only one PPF account in their name. Joint accounts or multiple accounts in the same individual's name are not permitted.

4. In the case of a minor, the account can be opened by a natural guardian (either parent) on behalf of the minor. The guardian will operate the account until the minor turns 18.

Note: Hindu Undivided Families (HUFs) and non-individual entities such as trusts and companies are not eligible to open a PPF account. Only individual residents can hold a PPF account.

What is the interest rate in a PPF?

The interest rate on a Public Provident Fund (PPF) is not constant and is subject to periodic adjustments by the government. The PPF interest rate has demonstrated stability compared to other small savings schemes. The recent annual interest rate on PPF is 7.8%. The interest is compounded annually, implying that it is calculated on the principal amount, including the interest accumulated in previous periods. The accrued interest is credited to the PPF account at the conclusion of each financial year.

How to Open a PPF Account?

To open a Public Provident Fund (PPF) account in India, you can follow these steps:

Select a Bank or Post Office:

PPF accounts can be opened at designated nationalized banks, certain private banks, and authorised post offices. Choose a financial institution that offers PPF services.

Visit the Branch or Post Office:

Go to the branch of the selected bank or the authorised post office where you wish to open the PPF account.

Collect the PPF Account Opening Form: Request the PPF account opening form from the bank or post office. You can also download the form from the official website of the respective bank or the Department of Posts.

Fill in the Form:

Complete the PPF account opening form with accurate details. Ensure you provide correct information such as your name, address, PAN (Permanent Account Number), etc.

Provide KYC Documents:

 Submit Know Your Customer (KYC) documents, which may include proof of identity, proof of address, and a recent passport-size photograph. The specific requirements may vary slightly among different banks and post offices.

Make the Initial Deposit:

Pay the initial deposit amount in cash, cheque, or demand draft. The minimum deposit amount to open a PPF account is ₹500.

Nominate a Beneficiary:

Nominate a beneficiary for the PPF account. This is a crucial step in designating who will receive the funds in case of the account holder's demise.

Collect the Passbook and Receipt:

Once the account is opened, the bank or post office will provide you with a PPF passbook and a receipt acknowledging the initial deposit. The passbook is crucial for tracking deposits, interest, and withdrawals.

Track the Account:

Regularly monitor your PPF account through the passbook or online access if offered by the bank. Keep track of deposits, interest accrued, and the overall status of your account.

How to open a PPF account online?

The process of opening a Public Provident Fund (PPF) account online may vary among different banks and financial institutions. However, here is a general guide on how you might initiate the process online:

Choose a Bank or Financial Institution:

Select a bank or financial institution that offers online PPF account opening services. Not all banks may provide this option, so check with your preferred bank.

Visit the Bank's Official Website:

Go to the bank's official website where you wish to open the PPF account. Look for the section related to PPF or Savings Schemes.

Find the Online PPF Account Opening Section:

Navigate through the website to find the section specifically dedicated to opening an online PPF account. This might be under the "Savings" or "Investments" category.

Read the Instructions:

Before initiating the online process, carefully read any instructions or guidelines provided by the bank. Ensure you understand the eligibility criteria, required documents, and terms and conditions.

Fill in the Online Form:

Complete the online PPF account opening form with accurate information. You may need to provide details such as your name, address, PAN, and nominee information.

Upload KYC Documents:

Scan and upload the necessary Know Your Customer (KYC) documents, such as proof of identity, proof of address, and a passport-size photograph.

Make the Initial Deposit:

Some banks may allow you to make the initial deposit online. Ensure you have the required funds in your linked account or follow the specified payment process.

Nominate a Beneficiary:

Nominate a beneficiary online, specifying who will receive the funds in case of your demise.

Review and Submit:

Review all the entered details, terms, and conditions before submitting the online form.

Receive Confirmation:

After submission, you should receive a confirmation of your PPF account opening. This may include an acknowledgement receipt or an email confirmation.

Collect Passbook and Documents:

Visit the branch or follow the instructions provided by the bank to collect your PPF passbook and any other necessary documents.

Where can individuals open a PPF account?

Names of some banks where you can open a PPF account:

State Bank of India (SBI)

ICICI Bank

HDFC Bank

Axis Bank

Bank of Baroda

Canara Bank

Punjab National Bank (PNB)

 Central Bank of India

Indian Bank

IDBI Bank

Union Bank of India

Bank of India

Punjab & Sind Bank

Syndicate Bank

What conditions does a PPF account become inactive?

A PPF account becomes inactive when the account holder fails to make the minimum annual contribution, which is ₹500, as per the rules. The account is considered inactive if the required minimum deposit is not made within a particular financial year. Regular contributions are essential to keep the account active and maintain its financial health.

How to Revive an Inactive PPF Account?

To revive an inactive PPF account, the account holder needs to make the minimum annual contribution (₹500) for each inactive year and a penalty of ₹50 per inactive year. This contribution and the penalty should be submitted to the bank or post office where the PPF account is held. Once the required payment is made, the account becomes active again, and the account holder can resume regular contributions and enjoy the benefits of the PPF scheme.

What is Attachment Immunity?

Attachment Immunity refers to the protection provided to the funds and interest accrued in the account from being attached or seized by any court order or decree. The law ensures that the money deposited in a Public Provident Fund (PPF) account and the interest earned are immune from attachment, making them secure and protected forms of savings. This safeguard ensures that the PPF account holder's financial assets are shielded from external legal claims or liabilities.

Benefits of a PPF Account

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Tax Advantages:

PPF offers tax benefits, allowing individuals to claim deductions on their contributions under Section 80C of the Income Tax Act.

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Tax-Free Interest Earnings:

The interest earned on a PPF account is entirely tax-free, enhancing overall returns without tax implications.

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Long-Term Savings Emphasis:

With a fixed tenure of 15 years, extendable in 5-year blocks, PPF encourages disciplined, long-term savings.

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Government-Backed Security:

PPF provides a high level of financial security as it is a government-backed savings scheme, ensuring the safety of deposited funds.

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Flexible Contribution Options:

While the minimum annual contribution is ₹500, individuals can contribute up to ₹1.5 lakh per financial year, offering flexibility in investment amounts.

Loan Facility against PPF

Since the account's opening, you can apply for a loan against your PPF account from the 3rd to the 6th financial year. Following the 6th year, you gain eligibility for partial withdrawals.

The loan amount is limited to 25% of the PPF account balance at the end of the second financial year immediately preceding the loan application. The interest rate on the loan typically exceeds the PPF account interest rate by 1%. Interest is levied on the principal amount from the initial day of the month following the loan sanction.

The repayment period for the loan is set at 36 months (3 years), commencing from the first day of the month succeeding the month in which the loan is sanctioned. Considering these terms is advisable when contemplating a loan against your PPF balance.

If the initial loan is entirely repaid, you have the option to avail of a second loan before the conclusion of the 6th financial year from the date of the initial loan. This provision offers flexibility for individuals requiring additional financial assistance after successfully repaying their first loan within the specified timeframe.

Withdrawals from the PPF Account

The standard rule for fully withdrawing the PPF account balance is upon maturity, which occurs after 15 years. At this point, account holders can freely withdraw the entire amount along with accrued interest, and the account can be closed.

 

In instances where account holders require funds before the completion of 15 years, the PPF scheme allows for partial withdrawals starting from the 7th year, signifying the completion of 6 years. Account holders can withdraw prematurely, with a maximum limit set at 50% of the account balance at the end of the 4th year preceding the year of withdrawal or at the end of the preceding year, whichever amount is lower. Additionally, these withdrawals are restricted to once per financial year.

Partial Withdrawals:

The maximum withdrawal amount is capped at 50% of the account balance at the end of the 4th financial year immediately preceding the year of withdrawal or the end of the preceding year, whichever is lower.

Frequency of Partial Withdrawals: Partial withdrawals can be made once per financial year.

 

Reasons for Withdrawal: PPF allows partial withdrawals for purposes like higher education, medical treatment, or meeting financial emergencies.

 

Full Withdrawal: The entire PPF amount can be withdrawn on maturity, which is after the completion of 15 years from the end of the financial year in which the account was opened.

 

Extension and Withdrawal Beyond 15 Years: After the initial 15-year period, the PPF account can be extended in blocks of 5 years. During the extended period, the account holder can make partial withdrawals.

 

Loan Repayment and Partial Withdrawal: If a PPF account holder has taken a loan against the PPF balance, partial withdrawals are allowed only after the loan is fully repaid.

 

Tax Implications: Both partial withdrawals and the final withdrawal on maturity are tax-free.

Procedure of withdrawal

Partial Withdrawal Procedure:

1. Eligibility Check: Ensure that you have completed at least 6 financial years from the date of opening the PPF account to become eligible for partial withdrawals

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2. Determine Maximum Withdrawal Amount:  Calculate the maximum amount you can withdraw, limited to 50% of the account balance at the end of the 4th financial year immediately preceding the year of withdrawal or the end of the preceding year, whichever is lower.

3. Visit the Bank or Post Office: Physically visit the bank or post office where your PPF account is held.

4. Withdrawal Form Submission: Obtain and fill out the