In this article, we will be discussing some of the important factors related to the Public Provident Fund (PPF) that investors should know about before making any investment decision. So, let’s get started!
1) Mind the Minimum Investment:
- An Individual should keep in mind the minimum investment in the Public Provident Fund (PPF) is Rs. 500 per year, in any case of failure, the PPF account will become dormant.
2) Upper limit of Investment:
- Also, there is an upper cap for the investment in PPF i.e., Rs. 1.5 Lakh in a financial year. No interest rate will be paid for the investment above Rs. 1.5 Lakh
3) Lock-In Period:
- The lock-in period of the PPF account is 15 years from the date of opening of the account i.e., from the date of investment.
- The lock-in period on yearly basis get decreases and it is not that every investment in the PPF account will have a lock-in period of 15 years.
4) Tenure can be Extended:
- If PPF Account is not provided with any instructions or transactions like withdrawal etc. the account gets automatically renewed for the next 5 years. One can also manually renew the PPF account for a maximum period of 5 years.
- There is no compulsion to invest in the renewed period but one will continue to receive the interest on the invested amount.
- To contribute to the investment during the renewed period, an individual need to write an application regarding the investment.
5) Partial Withdrawals Allowed:
- There is an allowance of partial withdrawal in the PPF account and it is not like the case of the Equity Linked Saving Scheme (ELSS) where there is a strict lock-in period of 3 years.
- In case of emergency or allowed cases, an individual can withdraw 50% of the balance of the 4th year after the completion of 6 years.
6) Take a Cheap Loan from PPF:
- An individual can also take a loan at a cheaper rate from the PPF amount.
- An Individual can avail of the loan from the PPF account between the period of the 3rd to 6th year of 25% of the current balance.
- This loan is available at the interest rate of PPF plus 1%. For Ex. If the interest rate given in PPF account is 7%, then adding 1% to it, an individual can avail of the loan at 8%.
- The loan period is up to 36 months or 3 years.
7) Account can be Foreclosed:
- The PPF Account can be closed before its maturity period along with completing redeeming the invested amount.
- One thing which should be kept in mind here is that the account should have completed a tenure of 5 years.
- The account will be closed based on specific reasons which are prescribed as well.
- A penalty is charged with a 1% reduction in the interest applicable for the period for which the account is held. For example, if you have earned interest of 8% per annum for 5 years on the PPF account, the interest for each year will be reduced to 7%.
8) Interest Rate is Assured but not Fixed:
- The interest rate of PPF is not fixed and is changed periodically as per the Government of India’s review.
9) PPF is loaded with Tax Benefits:
- PPF account provides plenty of tax benefits to individuals where primarily an individual can earn the tax benefits under section 80(C) of up to Rs. 1.5 Lakhs.
- Along with that, the tax component of the PPF account is completely tax-free.
- Also, as per recent notification, if an individual has not filed an Income Tax return, then TDS will be deducted at the time of PPF payment.
10) Opening PPF account for Minor:
- Individuals should note that opening a PPF account in the name of a minor to avail of additional tax benefits does not fetch any additional tax benefits.
What Should Individuals Do?
Above discussed points are some of the important factors related to the Public Provident Fund (PPF) account that an investor should keep in mind before or while remaining invested in PPF. This investing instrument comes with numerous benefits but has some key points to have a close eye on it as well.
Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.