Public provident fund(PPF) is a long term investment plan popular among investors who want to earn high and stable returns. Securing the principal amount is the chief objective of opening a PPF account. It is ideal for investors having a low risk appetite. This plan is mandated by the government so it provides guaranteed returns. Also these funds are not market-linked hence they always provide stable returns.
CHARACTERISTICS OF A PPF ACCOUNT:
The main characteristics of a PPF account are listed below:
- INVESTMENT TENURE:
A PPF account has a long term investment tenure of 15 years before which an investor can not withdraw the money completely. This tenure can also be extended to five years more.
2. PRINCIPAL AMOUNT:
A minimum principal amount of Rs 500 or a maximum amount of Rs 1.5lakh can be invested in a PPF account annually. The investment can be done on a lump sum or instalment basis. An individual is eligible for only 12 yearly instalment payments into a PPF account. But the investment has to be made every year to ensure that the account remains active.
3. LOAN AGAINST INVESTMENT:
PPF provides the benefit of availing loans against the invested amount. But the loan will be granted only if it is applied at any time from the beginning of the 3rd year till the end of the 6th year from the date of activation of the account. The maximum tenure of such loans is 36 months. Only 25% or less of the total amount available in the account can be claimed for this purpose.
4. INTEREST RATE:
The interest rate payable on a PPF account is decided by the central government of India. It provides a higher interest rate than regular bank accounts. Currently, the interest rate payable on such accounts stands at 7.9%.
Income tax exemptions are applicable on the principal amount invested in a PPF account. But it should be kept in mind that the total amount invested in one financial year can not exceed Rs 1.5 lakhs. The total interest earned on a PPF account is also exempted from income tax. This scheme makes this investment option attractive to investors.
The mandatory investment tenure is 15 years on the principal amount. But incase of emergencies partial withdrawal can be made. But it can only be withdrawn after the completion of 5 years of activation of the PPF account. Upto 50% of the total balance can be withdrawn in one transaction each financial year.
7. PREMATURE CLOSURE:
Nowadays premature closure of the PPF account is possible on the presentation of proper documents. It will be only allowed after completion of five financial years and only on specific grounds such as serious medical emergency, or the higher education of a minor account holder
only on the production of authenticate supporting documents from the medical authority or institution of higher education in India.
An individual can open only one PPF account in his/her name either in a bank or a post office. If two accounts are opened by the subscriber in his name by mistake then the second account will be treated as irregular and will not carry any interests unless the two accounts are combined. However, a separate PPF account can be opened on behalf of a minor by their parents. But both the parents can not open a separate account for the same minor.
There are three options to proceed with once a PPF account matures. You can close the account and withdraw the entire amount. On the end of the 15th financial year of investment you have to inform the bank and the entire credit amount will be paid to you. But if you want to extend the investment tenure, you can extend it to five years. During the extended tenure you don’t necessarily have to make fresh deposits. If you wish to extend the tenure without fresh deposits, then you don’t have to inform the bank about it. It will be automatically considered as extended if the account is not closed on maturity. In this extended period only the interest amount will be added up to the total amount. If you wish to extend the tenure and even keep making new deposits, then you have to inform this to the bank before the expiry of one year in writing by filling up the Form H. Partial withdrawals are also allowed in the extended period.
Investors looking for long term and low risk investment options providing stable returns should definitely opt for this government mandated investment plan. Also, if the maturity of the PPF account is not closed to your retirement age then it is a better idea to extend the tenure. It only takes a minimum of Rs 500 a year to keep the account active. Also it is tax-free and definitely a better low risk investment option than others.