Launched by the National Savings Institute in 1968, the Public Provident Fund (PPF) continues to remain one of the most dependable investment tools for the middle-class section in India. Its continued preference can be attributed, in part, to the fact that it is a government-backed programme and an investment with stability. The PPF plan offers a competitive interest rate, and there's no tax deduction required on interest-rate-related returns.
So, if you are looking to begin your savings journey by investing in a PPF, you are at the right place. This article will explain everything you need to know regarding a PPF scheme. Let’s begin!
What Is A PPF?
Public Provident Fund, or PPF, was established by the government of India to promote small savings and offer returns on those savings, much like all other small tax savings plans.
The PPF is also referred to as savings-cum-tax savings investment. The money you put in a PPF does not subject you to tax. Furthermore, you are not required to pay taxes on the interest it generates. All Indian nationals can invest in a PPF as they are not market-linked, thus providing a steady return on investment annually. The PPF plan is exempt from taxes on the principal, maturity amount, and interest generated because it falls within the Exempt-Exempt-Exempt (EEE) category of tax policy.
Features Of A PPF Account
Here are some of the features of a PPF:
1. The deposits can be made either entirely at once or in installments.
2. There can only be one PPF account per individual. Multiple accounts are not permitted.
3. One of the key rules of a public provident fund account is that you are not permitted to have any joint accounts.
4. If a customer doesn't make the required minimum deposit within a year, their account will be closed.
5. The minimum amount deposited is used to compute the monthly PPF interest. Each month, this calculation is performed after the fifth.
6. You can deposit money into your PPF account by using cash, a DD, a check, or an electronic wire transfer.
7. In case you have discontinued your existing PPF account, you cannot open another one.
8. If you are a minor, your guardian or parent can open a PPF account for you.
9. When opening a PPF account, it allows you to appoint a nominee of your wish.
10. Last but not least, the interest is added to the account at the end of the fiscal year instead of being credited monthly.
Benefits Of A PPF Account
Extended lock-in period
Being a long-term investment scheme, PPF provides a lock-in period of 12-15 years. This means that the funds accumulated in a PPF account are only allowed to be withdrawn at maturity. However, pre-mature withdrawal is allowed in some situations.
Tax exemptions
When talking about the PPF benefits, tax exemption is a great one. The total amount invested in a PPF account is exempted from income tax. Therefore, the entire investment value can be claimed as a tax exemption under Section 80C of the Income Tax Act of 1961. As a result, you are allowed to invest up to Rs. 1.5 lakh each year fully tax-free.
Stable returns
PPFs are secure investments that offer a great deal of security and protection for risk-averse investors because they are government-sponsored schemes. And since it is a government-guaranteed plan, you can easily use a PPF to construct and secure a retirement corpus for yourself.
Loan against a PPF account
A PPF account holder may borrow money against the balance of his PPF account. However, the loan can only be obtained after a year. And borrowers will have to pay back the loan balance within three years after the distribution date.
Minimum and maximum investment amount
Every year, individuals can invest a minimum of Rs. 500. A PPF account can also receive a maximum investment of Rs. 1.5 lakh in a single fiscal.
To Conclude
Now that you know the PPF account benefits, start investing wisely. Besides, a PPF is one of the safest investing alternatives in India. Anyone who lives in India can create a PPF account and benefit from the long-term, tax-free, and risk-free investment option.
This article does not intend to pass on any financial advice and BQ Prime does not endorse any of the funds/schemes mentioned above. Please invest at your own discretion.
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