Everyone knows the acronym of PPF i.e. Public Provident Fund and most of us want to open a PPF account, but keep postponing it just because of little knowledge about it and don’t know about its rules, interest rates, how it works, withdrawals, loans, documentation, nomination procedure etc.

Even if one does not need it or have no intention of putting his money in PPF account, you should learn the things about this wonderful product as one such long-term safe investment option that would suit also investors who believe investing only in equity funds. This is money that will be yours forever and it helps your psyche of investing into something that offers “Guaranteed” returns.
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Start a PPF account with just Rs100
It’s time to head over to your nearest State Bank of India or a branch of State bank’s subsidiaries to open an account as PPF with initial deposit of just Rs100. Fill in the form, attach a photograph, state your PAN Number, and you’re just done. Once your formalities are completed, you will receive a pass book which will record all your PPF transactions.
Unlike, multiple saving accounts in multiple banks, at any point in your life, you are allowed to have only 1 PPF account in your name and it cannot be opened as jointly. But you may open different accounts in the name of your family members. Like in the name of your spouse and your children (Minor/Major). But, do note that if your minor child has a PPF account, whom you are a guardian,  the combined limit for both accounts cannot be more than be Rs 1 lakh.

If at any time it is discovered that you have more than 1 account in your own name or on behalf of minor whom you are a guardian and its combined limit exceed Rs1 lakh in a year, account will be deactivated as the case may be, and only your principal will be returned to you. No interest will be paid on that accounts. Hence, an individual is only allowed to open the PPF account.  While earlier an HUF could open a PPF account and save tax on the deduction, this has, now been stopped.

Maintain minimum and maximum deposit limit in PPF
To stay continue the account, you have to put in at least Rs500 in your PPF account in a year, otherwise you will be levied a small, but irksome, penalty of Rs50 if you fail to do so. The maximum limit that could be deposited is Rs1 lakh in a financial year. Deposits could be in either one go, or in flexible instalments (in multiples of Rs10), you can invest into your PPF the same way you would invest by way of a Systematic Investment Plan (SIP), i.e. making up to 12 instalments in a year of different amounts, but not more than 12 investments in a year.
Maturity period of the PPF account is 15 years
Keep in mind you need to be disciplined with the PPF to make the most of it, and also meet your liquidity needs elsewhere, because with this investment your money is blocked for 15 years, technically it is for 16 years. The PPF Rules ignore the year of opening the account. It claims to have a term of 15 years but the account matures after 16 years. So, you can contribute to the account during the 16th financial year, even on the last day. Hence, it scores over poor liquidity but adheres tight self-discipline regular investing approach.
Interest rate and its calculation in PPF account
The PPF interest rate has steadily range bound from 8% to 9% over the years, and can be expected to slowly remain in the same range as the years proceed. The interest rate of 8.00% was also hiked to 8.60% initially, followed by a further hike to 8.80% effective 1st April, 2012. Henceforth, interest on the PPF would subject to change annually.
Your interest will be calculated on the minimum balance in your account between the 5th and the last day of every month, so if you were planning on investing into it monthly, make sure you invest (i.e. your PPF account is credited with the investment amount) on or before the 5th of every month.
Remember, if you are investing from a different bank account (i.e. not SBI), it will take up to 3 working days for the amount to credit to your PPF, so the best thing to do would be to factor this in such that the lowest balance in your account includes the new investment, otherwise you will lose out on one month’s interest. Interest is compounded annually and credited on March 31 each year.
 Premature Withdrawal of PPF
Although, the maturity period of the account is 15 years and the entire corpus in your account could be withdrawn only on maturity, you are permitted partial withdrawal in case of financial emergencies which is allowed, at any time after the expiry of 6 years from the end of the year in which  the initial investment was made. You can withdraw from the balance amount to your credit an amount must not exceed 50 per cent of the balance at the end of the fourth year, or 50 per cent of the balance at the end of the immediate preceding year, whichever is lower, less the amount of loan, if any, drawn by you and which remains to be paid.
Thereafter, you can make one withdrawal per year. The withdrawal amounts are not repayable. Provided that not more than one withdrawal shall be permissible during any one year. Hence, withdrawal has also to be planned accordingly.
Loan against PPF account
The PPF also offers loans against the account which can help you during occasions like a wedding in the family, further studies of your children, etc. Above all that it gives you a peace of mind as your money is safe. You don’t have to wait till you become eligible for withdrawals from the account. At any time after 2 years from the end of the year in which the initial investment was made, you are eligible to apply for a loan amount not above 25% of the amount that stood to your credit at the end of the second year immediately preceding the year in which the loan is applied for;
Such loan amount under the PPF scheme is to be repaid either in one lump sum or in monthly instalments up to a maximum period of 36 months. After the principal amount of the loan is fully repaid, you are also required to pay the interest on the loan amount taken which is to be paid in 2 equal monthly instalments at the rate of 2% (over the prevailing rate) per annuam calculated for the loan period.
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. Remember to have loan exposure that is at least in line with general financial planning thumb rules.
Taxation aspects of PPF account
Its accumulated interest is exempted from tax and qualifies for a deduction under section 80C on PPF is amongst the best tax free returns. Not only is the interest earned tax free, PPF deposits are exempt from wealth tax too. An added advantage where contribution are made by you to your minor child’s account, would be that the interest income credited in child’s PPF account being tax free, will not attract any clubbing provisions of section 64 of the Income-Tax Act.
But keeping note that any withdrawal after 5 years will be clubbed with your income for that year. So, basically whatever amount you withdraw from PPF, is taxable if you withdraw it before maturity (i.e. before 15 years of account opening).
Continuing or withdraw PPF after the 15-year period
It is an interesting fact that not a lot of people, and in fact not a lot of banks know, once PPF account matures. After the expiry of the maturity period of 15 years, you have now, 3 choices.
Either you can withdraw your entire maturity amount, your account would be closed, or you can extend your account by a 5 year block, as many times as you want and make fresh contributions, 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 or you can extend the account without making any further contributions, and continue to earn interest on it every year. 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.
Just remember, if you choose to extend your account, submit the necessary documentation that is Form H, for extension before one year passes from the maturity date.
Close, transfer or extend PPF account
You can close the account after completion of 15 years or the expiry of 15 years from the close of the financial year in which the initial subscription was made.
In case of death of the account holder, the balance amount in the account of the deceased account holder will be paid to his nominee or legal heir, as the case may be, even before expiry of 15 years. The nominee or legal heir cannot continue the account by making fresh subscriptions to it. If the balance in the amount is more than Rs1 lakh, then the legal heir or nominee has to prove identity and provide the relevant documentation to claim the amount in the PPF account.
Your PPF account can be transferred at the request of the subscriber from one office of SBI or its associates to the Head Post Office or vice versa. A PPF account cannot be transferred from one person to another.
Your PPF account can be transferred at the request of the subscriber from one office of SBI or its associates to the Head Post Office or vice versa. A PPF account cannot be transferred from one person to another.
NRI can’t open PPF account
The rule of 25th July, 2003 states that ‘Non Resident Indians are not eligible to open an account under the PPF Scheme’. But there is a silver lining for some NRIs. If you already had a PPF account, when you were resident in India, and during the tenure of the PPF account you became an NRI, then you are eligible to continue investing in the account until it matures, but on a non repatriable basis.
The rule states is as follows: ‘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.
Nomination in PPF account
It’s very important to ensure that you have a nominee on your PPF account, who in the event of your death will receive the PPF corpus. You can nominate one or more persons to receive the amount standing to your credit in the event of your death. Use Form E to make initial nominations, and if you wish to later change them, use Form F.
Financial Planning perspective on PPF account
Broadly, the PPF account is a good thing to have, especially for those individuals who do not work in the corporate sector and hence don’t have an EPF account, but even for salaried individuals nonetheless. From a tax perspective, this is a very sound avenue, giving you tax deductions on investment as well as tax exemption at the time of maturity. This money is yours for the keeping – it cannot be attached by order of a court to any debt or liability you may have.
Don’t withdraw from your PPF account to simply deposit the same funds back in your PPF account to get the tax deduction. This defeats the purpose of having a PPF account in the first place that is safe wealth creation and tax saving to achieve your life goals.
Conclusion
To conclude, when choosing your tax saving avenue, be sure to choose according to your risk appetite. If you are a conservative to moderate investor, the PPF is a very good investment avenue. Even if you are an aggressive investor, the PPF can be a safe hedge against your more risky investments. Keep your liquidity needs, life goal time horizon and risk appetite in mind when investing. And recommending it to your near and dear ones and as said by a great tax consultant.
PPF stands for –“Peace and Prosperity Forever”
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Suresh Kumar Narula

SEBI Investment Advisor, Founder & Principal Financial Planner at Prudent Financial Planners
Suresh K Narula is founder and Principal Financial Planner at Prudent Financial Planners. He has earned the professional CERITIFIED FINANCIAL PLANNER and got registered with SEBI as Investment Advisor. He writes on personal and financial planning articles and got published in Dainik Bhaskar, Business Bhaskar and The Financial Planner's Guild, India. He is also a member of Financial Planner's Guild India ( An association of practicing SEBI registered Investment advisers) to create awareness about Financial Planning in general public, promote professional excellence and ensure high quality practice standards. Suresh received his an M.com from Himachal Pardesh University and an MFC from Punjab University, Chandigarh. He can be reached at info@prudentfp.in
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