When it comes to retirement planning in India, you might have heard a lot about PPF or Public Provident Fund. You might have surely got suggestions by your elders or friends to open a PPF or Public Provident Fund Account. One of the most common ways to invest your monthly savings!
So, here we shall be discussing everything about PPF or Public Provident Fund. Have a look at the present PPF Interest rate and know the PPF rules as applicable.
Public Provident Fund or PPF:
PPF or Public Provident Fund, is considered as one of the best long term investment options. This one is especially for the investors who want to invest their money for a longer duration without taking any sort of risk.
You will hopefully get answers to all your queries regarding PPF:
- What is PPF Account?
- Who can open a PPF Account?
- What are PPF Rules?
- What is PPF Interest rate?
- How Interest is calculated on PPF?
- What about PPF withdrawal and loan facility?
- What are tax benefits of investing in PPF?
- How to calculate PPF Principal and Interest amount by using the given PPF Calculator? (PPF Calculator given below).
Just the ultimate guide to all your possible queries regarding PPF or Public Provident Fund.
This is a bit lengthy post, you just need to sit back and enjoy your tea or coffee and keep adding to your knowledge about PPF side by side.(sip by sip….)
PPF Account, Interest rate & Tax benefits
PPF Scheme or Public Provident Fund Scheme was introduced in India in the year 1968 to encourage the people to save some money out of their earnings. The main objective of PPF is to build a good retirement corpus and provide a financially secure after retirement life.
PPF is a long term investment scheme of the Government of India. Your invest your money for a fixed duration and earn a fixed rate of interest on your investments. PPF is considered as a safe investment option since there is zero risk involved. You will get back what you have invested along with interest earned after a fixed period.
Who can open a PPF Account as per PPF Rules?
A Resident Indian, 18 years or above can open a PPF Account in any nationalised, authorised banks or post offices. Only one PPF Account is allowed per person. However, PPF Account can be opened for minor (below 18 years age) Here, the account shall be handled and deposits shall be made by the guardian (who is above the age of 18 years).
Grandparents cannot open PPF Account in the name of their grandchildren. HUF is not allowed to open PPF Account. Foreigners are not allowed to open PPF Account.
Also, Non Residents Indians or NRIs cannot open a PPF Account. But, if an individual opened a PPF Account while he was a Resident and later on he became a Non Resident Indian(NRI) he is allowed to continue his PPF Account and invest in the same till maturity i.e. upto 15 years period.
In October 2017 there was an amendment that PPF accounts of NRIs shall deemed to be closed from day they turn NRIs. However, this decision was revoked in Feb 2018 till further changes. So, presently NRIs can continue their PPF account. But, make sure to confirm the same from the respective banks.
Don’t miss to have a look at New PPF Rules: Changes introduced in 2019
PPF or Public Provident Fund Scheme: Key Features
1. PPF Contribution:
An initial amount of Rs.100 is required for PPF Account opening. The minimum annual contribution is Rs.500. The maximum contribution in a PPF Account can be upto Rs.1.5 lakhs only during a financial year (where financial year is 1st April to 31st March).
You cannot deposit beyond Rs.1.5 lakh limit. Even if you try doing so, the amount deposited in excess of Rs.1.5 lakhs won’t fetch any interest and it shall be returned to you.
2. Mode of Payment:
You can deposit in PPF Account through cash, cheque, DD or online funds transfer as well. These days people prefer making payments through online gateways which is much more convenient than visiting the bank. You have to deposit every year to let the PPF Account remain active and to avoid any penalty for non deposit. The maximum amount of deposit during a financial year can vary as per your convenience. You just have to maintain the minimum contribution and not exceed the maximum contribution.
You can make a one-time deposit in PPF Account or upto 12 instalments as per your convenience.
You may also like: SBI PPF Account : Interest rate, How to open it & transfer online?
3. PPF Lockin Period:
The lockin period for PPF is 15 years, (that is quite a long period) with partial withdrawal in the 5th year subject to certain conditions. Also, you can get an extension of extra 5 years at maturity i.e.if you want to invest in PPF beyond 15 years, you can do so by submitting the requisite form.
Important: The tenure for maturity starts from the immediate next financial year in which PPF Account has been opened.
e.g. If you open the account in Sep 2016, then 15 years count starts from 1st April’17 for maturity calculation. So, the 15 years tenure will be 1st April’17 plus 15 years.
4. PPF Rate of Interest:
PPF Rate of Interest is decided by the Government of India and revisions are made from time to time. The PPF interest rate was 8% p.a. for the quarter Oct to Dec’18. The same is unchanged for the next quarter as well. Hence, the present rate of interest is 7.9% per annum only. PPF amount yields a fixed rate of interest. PPF interest rates are as follows:
|Period||PPF Annual Rate of Interest|
|1st Jan'20 to 31st March'20||7.9%|
|1st Oct'19 to 31st Dec'19||7.9%|
|1st Jul'19 to 30th Sept'19||7.9%|
|1st Apr'19 to 30th Jun'19||8%|
|1st Jan'19 to 31st March'19||8%|
|1st Oct'18 to 31st Dec'18||8%|
|1st July to 30th Sept'18||7.6%|
|1st Apr'18 to 30th Jun'18||7.6%|
|1st Jan'18 to 31st March'18||7.6%|
|1st Oct'17 to 31st Dec'17||7.8%|
|1st Jul'17 to 30th Sep'17||7.8%|
|1st Apr'17 to 30th Jun'17||7.9%|
|1st Jan'17 to 31st Mar'17||8%|
|1st Oct'16 to 31st Dec'16||8%|
|1st Jul'16 to 30th Sep'16||8.1%|
|1st Apr'16 to 30th Jun'16||8.1%|
|1st Apr'15 to 31st March'16||8.7%|
Depositing in PPF Account before 5th of a calendar month fetches you maximum interest. The same has been explained with the help of an example below. Keep reading further to grab more information….
5. PPF Tax Benefits:
PPF is considered as the best tax efficient tool because of the EEE nature it has. (here E stands for Exempt from tax)
You can claim a Tax deduction Under Section 80 C of Income Tax act,for contribution made towards PPF upto a maximum of Rs.1.5 lakhs.
So, PPF is normally considered as one of the Best Long term Investment Options due to its EEE nature i.e. Exempt, Exempt and Exempt.
To clarify further, EEE or Exempt at all 3 stages means:
- Contribution or Deposit amount is Tax free U/s 80 C of The Income Tax Act.
- Interest earned is Tax free.
- Maturity/Withdrawal amount is also Tax free.
Important Note: If PPF Account has been opened in the name of Minor, there will be no additional tax benefit to the guardian. This means total tax deduction U/s 80 C will be restricted to Rs.1.5 lakhs only including the amount deposited in both Minor PPF account and the major guardian account.
6. Loan Facility Available:
You can avail a personal loan against the balance in your PPF account between the 3rd and 6th financial year of opening the PPF account.
You can avail a maximum loan upto 25% of the balance at the end of the 2nd financial year preceding the year in which the loan is applied for.
7. PPF Withdrawal:
A complete withdrawal is allowed only at the time of maturity i.e. after 15 years lockin period. But, you can make partial withdrawals that too subject to certain conditions.
How Interest is calculated on PPF?
The PPF interest is compounded annually. However, the calculation of interest is done every month but the same is credited at year end. Interest is calculated on the lower of the balance held on the 5th of a month to the end of that particular month.
A Simple but useful Tip:
How to earn Maximum Interest on PPF during a month?
For any given month, the deposits made on or before the 5th will be considered for interest calculations for that particular month. Interest is calculated on the lower of the balance held on the 5th of a month to the end of that particular month.
So, if you deposit on or before 5th of a particular month, the same shall be considered for interest calculations for that month.
PPF Account balance of Mr.A on 1st October is Rs.50000. Mr.A wants to deposit another Rs.50000 to his account in October.
Option 1: If Mr.A deposits this amount on or before 5th October, the interest for the month of October will be calculated on total amount of Rs.100000 (balance as on 5th October).
Option 2: If Mr.A deposits after 5th October,say on 10th October, the interest for October will be calculated on Rs.50000 which is the balance as on 5th October. The additional Rs.50000 shall be considered for interest calculation in the next month i.e. November.
Hence, it will be beneficial for Mr.A to deposit on or before 5th October to earn some extra interest for the month.
Therefore, it is always better to deposit the amounts in PPF account before 5th of a calendar month to earn the maximum possible interest.
PPF Account: Is it worth Investing?
To conclude, PPF can be regarded as a great retirement planning tool. An efficient tax saving option wherein you get to enjoy tax free returns. In addition to it, you tend to build a good corpus at maturity without taking any risk.
However, the falling interest rates of PPF from 8.7% to 8.1% and further to 7.9% in the past few years is a major point of concern for the potential investors. The reduced PPF Interest rates over the earlier periods lead the investors to look into other investment alternatives.
Anyways, if you have surplus funds and are planning for your long term goals, you should consider PPF as an essential part of your Financial Portfolio. Park some of the funds in PPF and do explore other investment options also in order to diversify your funds and get higher returns.
Feel free to share your valuable opinions in the comment section below! You liked it, do share it with your family and friends to help them in their retirement planning.