Public Provident Fund is a government-backed scheme to invest money for a lock-in period of 15 years and earn returns on the amount deposited as per the rates determined by the Finance Ministry every quarter. Presently, PPF interest rate is 7.1 %. The most significant advantage of investing in a PPF scheme is that you can save a small portion every year and also get tax benefits on the principal amount deposited, interest earned and the amount received at the end of maturity period.
Investing in a PPF scheme: Anyone can easily open a PPF account through public/private sector banks or post offices. Earlier, you could open a PPF account with nationalised banks. To open a PPF account, you need to deposit Rs. 100 in your account. The minimum amount for deposit in PPF account is Rs 500 every financial year, and you can invest up to Rs. 1.50,000 every financial year for a tenure of 15 years. However, after the maturity period, you may also extend the tenure in blocks of 5 years.
Can you withdraw your funds before the maturity period?
There are three scenarios when you can withdraw your funds from the PPF account.
- Partial withdrawal
- Premature withdrawal
- On maturity
Partial withdrawal of funds from PPF account: Individuals can withdraw funds from their PPF account partially from the 6th financial year from opening their account. They can withdraw up to 50% of the total amount deposited at the end of the 4th year or the amount deposited at the end of the previous year, whichever is lower. However, you can make a partial withdrawal of funds only once in a financial year.
How can you withdraw funds?
An Application Form C is required to be submitted to withdraw funds partially. To withdraw funds, you need to provide account details like an account number. If the account is in the name of the minor nominee and the funds are to be used for minor, it has to be mentioned by means of a declaration.
Premature closure of PPF account: You can also close your PPF account prematurely at the end of 5th financial year in these circumstances:
- If the account holder or spouse or children have a life-threatening disease, they can close their account. On premature closure of the account, they can get 100% of the total amount deposited at the end of 4th financial year. However, the account holders need to submit documents for illness from a reputed medical authority.
- You can also close your account prematurely if you need funds for the education of your child or your educational expenses. To close your account, you need to submit a fee bill or admission confirmation from the reputed educational university.
Closing account after the maturity period: You can close your PPF account after the end of the maturity period. The tenure of PPF account is 15 years, and you can withdraw the entire amount. You can also extend the PPF account in the blocks of 5 years after the maturity period. However, if you don’t close your account after the maturity period, it will automatically get extended, and you will continue to receive interest payments on your investments. If you choose to extend your account, you can withdraw funds from your PPF account up to the total amount deposited before the extended period.
Conclusion: Public Provident Funds is thus a secure investment option where you can keep receiving interest payments along with tax benefits by depositing a minimum of Rs. 500 in your account. While it is a long-term investment option, it is difficult to withdraw funds before a specific time.