The BuyT Desk
Public Provident Fund (PPF) is one of the most popular small saving schemes and is considered a good and safe investment. PPF gives you the benefit of compounding interest on your invested capital. Here are 8 things that you must know about your PPF-
1. Interest is fixed but the rate is not fixed
You will get an assured return but the rate of interest on PPF may vary from quarter to quarter. It is revised every 3 months. However, the interest rate or the FY 2019-20 has remained constant at 7.1% all throughout the year. The interest rate of PPF is linked to the 10-year government bond yield. It is decided on the basis of the average bond yield of the last three months. There has been a steady decline in the 10-year bond yield in the last two years. This has had an impact on PPF.
2. PPF can be extended beyond maturity
Public Provident Fund account matures in 15 years. When the account is matured, you have the option to withdraw the entire balance and close the account. But, if you want to increase the contribution, then the account can be extended for a block of 5 years.
3. Pre-mature Withdrawal
A PPF account comes with a maturity of 15 years. But there is provision for pre-mature withdrawal after the completion of 5 years. You can withdraw 50% of the balance of the fourth year or 50% of the balance of the preceding year whichever is lower.
4.Loan against PPF
You can take a personal loan against the balance of your PPF at a nominal interest of 1%. If the account has not completed six years, then you can take a loan from 3 years to 6 years. The loan can be taken up to 25% of the balance till the end of the last financial year. It has to be repaid in 3 years. If the loan is not repaid, the investor cannot take another loan.
5. How much to deposit?
The minimum amount that you must deposit in a PPF account in a year is Rs 500 and the maximum limit is Rs 1.5 lakh. If you do not make a minimum investment of 500 rupees then your account can become dormant. To reactivate the account you will have to pay a penalty of Rs 50.
6. Can I have two PPF account?
Yes, you can open another account in the name of your spouse or minor children. But you can’t invest Rs 1.5 lakh in each of your accounts. The limit of investment in PPF is Rs 1.5 lakh in a year and you can’t cross this threshold. The aggregate of multiple accounts has to be within the limit of Rs1.5 lakh.
7. Why you must make your deposit before the 5th of every month
The Public Provident Fund offers compound interest annually. However, its calculation is done every month. Interest is available on the lowest balance from the 5th to the last date of the month. If you invest before the 5th, then you will get the interest on your deposit for that month but if you deposit post 5th then you may lose the interest on the deposit made post 5th.
8. Tax-free
PPF comes under the exempt-exempt-exempt category. There is an exemption of up to Rs 1.5 lakh under Section 80C on investment in Public Provident Fund. There is no tax on the interest earned and withdrawal at maturity is also tax-free.
