What is PPF, Why to Invest in PPF & How to Extend beyond 15 Years

Article explains What is PPF (Public Provident Fund) Why Should You Invest in PPF and How to Extend PPF Beyond 15 Years.

What is Public Provident Fund (PPF)

The Public Provident Fund is a savings cum-tax-saving instrument in India, introduced by the National Savings Institute of the Ministry of Finance in 1968. The objective of this scheme is to promote small savings by offering an investment with reasonable returns combined with income tax benefits. The scheme is fully guaranteed by the Central Government.

Investment and Returns in PPF

The Minimum Yearly Investment in PPF is ₹500 and it is also Required to Maintain a PPF Account And the Maximum Amount in PPF is ₹1,50,000 Yearly. One Can Deposit his/her Money in PPF Account in Lump Sum or Monthly Installments

The Ministry of Finance, Government of India announces the rate of interest for PPC accounts every quarter. The interest rate compounded annually and paid on 31 March every year. Interest is calculated on the lowest balance between the close of the fifth day and the last day of every month.

Interest Rates

1986-2016

2016-17

2017-18

Maturity of Scheme

The maturity of the PPF Account is 15 Years. Thereafter it can either be closed and the entire amount can be withdrawn or on application by the subscriber, it can be extended for 1 or more blocks of 5 years each, with or without making further contributions.

How to Extend It Beyond 15 Years

The Original Duration of PPF is 15 Years. Thereafter It is the Choice of the PPF Holder that it will be Extend to one or More Block of 5 Years. If a Person Wants to Extend PPF then there are Two Possibilities

• Extend the PPF account with no contribution – PPF account can be extended after the completion of 15 years, subscriber doesn’t need to put any amount after the maturity. This is the default option meaning if a subscriber doesn’t take any action within one year of his PPF account maturity this option activates automatically. Any amount can be withdrawn from the PPF account if the option of extension with no contribution is chosen. Only one withdrawal is permitted in a financial year. The rest of the amount keeps earning interest.
• Extend the PPF account with contribution – With this option subscriber can put money in his PPF account after extension. If a subscriber wants to choose this option then he needs to submit Form H in the bank where he is having a PPF account within one year from the date of maturity (before the completion of 16 yrs in PPF). With this option, the subscriber can only withdraw a maximum of 60% of his PPF amount (amount which was there in the PPF account at the beginning of the extended period) within the entire 5 yrs block. Every Year only a single withdrawal is permitted.

Why Should You Invest in PPF Account

• Risk-Free Returns

Public Provident Fund is a Government Scheme and it is Fully Guaranteed by Central Government of India and If any Discrepancies Occur in PPF Account Then  Central Government is Fully Liable to Payment of Invested Money to Investors.

• Tax Benefits

Contribution to PPF account is eligible for tax benefit under Section 80C of the Income Tax Act. Any Individual can get a maximum deduction of up to ₹1.5 lacs under Section 80C of the Income-tax Act,1961  by Investing in PPF.

• Flexible to Invest

One can Easily Invest in Public Provident Fund by Opening a PPF Account in Bank or Post-Office with hassle-free Procedure and Can easily Operate PPF Account.

• Mobilize Small Savings

PPF Account is Mobilize Small Savings by Accepting Monthly Installments in PPF Account Holders which is Beneficial for Salaried and Daily Wages Earners.

• Secure and Stable Returns

PPF Account Gives Secure and Stable Returns from 1986. The Interest Rate in PPF Account is Announced by Government Every Year and the Investment in PPF Account is Fully Guaranteed By the Central Government of India.

• Invest in Minors Name

Any Individual Can Also Invest Money in PPF in the Name of Minor Children. There must be a guardian for PPF accounts opened in the name of minor children. Parents can act as guardians in such PPF accounts of minor children. 

• Tax-Free Returns on Maturity

There is a lock-in period of 15 years and the money can be withdrawn in full after its maturity period. However, premature withdrawals can be made from the start of the seventh financial year. After 15 years of maturity, the full PPF amount can be withdrawn which is tax-free, including the interest amount as well.

• Loan Facility

Any Individual Can Also get Loan Against the PPF Account. The loan facility is available from the 3rd financial year up to the 6th financial year. The rate of interest charged on a loan taken by the subscriber of a PPF account on or after 12 December 2019 shall be 1% more than the prevailing interest on PPF.