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How to Invest in PPF

Public Provident Fund, or PPF, is a preferred investment option for many. This is because it offers the triple advantages of safety, returns, and tax benefits. PPF was first offered to the public in 1968, by the Finance Ministry’s National Savings Institute. Since then, its popularity has grown year after year. For many investors in India, it is a favorite and preferred means of investment.

How Do You Open and Invest in a PPF Account?

Opening and investing in a PPF Account is simple. First, you need to visit either a bank or a post office for the purpose of opening a PPF account. For this, you will need to fill up the relevant forms, and will also need to submit ID proof, such as Aadhaar card, Permanent Account Number card, passport, and so on. In addition, you will need an address proof.

Once the account is opened, you can deposit funds by visiting the institution, or you can even conveniently do it online. If you’re doing it offline, you need to fill up the PPF deposit challan with your name, address, account number, amount, and indicate whether you are making the deposit by cheque or cash.

If the preferred mode of payment is online, you can do it with a funds transfer, after adding your PPF account as a beneficiary. You can even issue standing orders for a certain amount to be periodically credited to your PPF account. Don’t forget to update your passbook regularly, and to check on the status of the funds.

Features of PPF

PPF has many significant features. Here are the key ones.

The interest rate of 7.9% (as of July 1, 2019) is exempted from Income Tax under Section 80C.
It’s a long-term investment option that is locked in for 15 years.
The minimum deposit is Rs.500 and maximum is Rs.1,50,000 in one financial year.
A maximum of 12 transactions is allowed for deposits.
Loan against PPF can be taken between the third and sixth financial year.
From the 7th financial year onwards, a partial withdrawal facility is available.
After the 15-year maturity, the account can also be extended in blocks of five years after maturity.
The procedure of deposits is convenient, and they can be made in the form of cash, cheque, or online funds.
The interest is calculated and compounded annually. It is paid on March 31, and the PPF interest rate is set by the Finance Ministry on a yearly basis.
The calculation of interest is based on the minimum balance that is available between the close of the fifth day and the last day of the month.

What Are the Benefits of Investing in PPF?

With assured returns of 7.9%, PPF is at par with returns of most bank fixed deposits. The additional tax benefits are a great advantage over other forms of investments. The amount you invest up to Rs.1,50,000 is deductible from your taxable income, the interest is non-taxable, and the maturity amount after 15 years is also tax-exempt.

This is what is referred to as the EEE feature: exempt, exempt, exempt. Importantly, because the PPF deposits are government-guaranteed, they are safer than other financial instruments like fixed deposits or mutual funds.

Government bonds are also as secure as PPF investments and may offer comparatively higher interest. But taking the tax benefits of PPF into account, the returns here look more attractive.

Eligibility for Opening PPF Account

Any resident of India can open a PPF account. PPF accounts can also be opened by parents for their minor children. Non-resident Indians cannot open PPF accounts. But a resident Indian who has become an NRI after opening a PPF account can continue the account till maturity.

PPF accounts are single accounts. Joint accounts and multiple accounts by one individual are not permitted.

FAQs on Invest in PPF

Can Money Be Deposited Online in a Post Office PPF Account?

As noted earlier, you can open a PPF account in a bank or in a post office. Almost all banks nowadays have online facilities, and you can deposit money in your PPF account online.

At present, post offices do not offer such online facilities. One has to go in person to deposit the amount in one’s PPF account. If the convenience of online transfers is important to you, you can transfer your account to a bank that provides online services. You have to submit an application at the post office for transfer, mentioning the details of the bank where you wish to transfer your account. Once your application is processed, the post office will send your documents to the bank. You will then will be asked to submit a fresh PPF account opening form, along with your original PPF account passbook.

After this, you may deposit funds in PPF online, in the way that you use online facilities for other banking needs.

Which Is the Best Bank to Open a PPF Account?

PPF is not a bank product, but a government scheme. The interest rate and regulations are set down by the government. Therefore, it is not the case that one bank will provide advantages over the other. The scheme remains the same, and the bank only administers it.

Keep in mind though, that the banks which administer PPF accounts are nationalised banks, with a few others such as Axis Bank, HDFC Bank, and ICICI Bank also offering the scheme.

It would make sense to opt for a bank in which you already have an account and one that has efficient online facilities. This is so that your process of maintaining the PPF account is convenient and familiar.

How much money can be deposited in a PPF account in a year?

The minimum amount you can deposit in one year is Rs 500, and the maximum is Rs 1.5 lakhs. You can deposit at any time during the year, and in any amount. This is subject to the overall minimum and maximum amounts. The number of times you can deposit in a PPF account in a single year is capped at 12.

Can I increase my investment by opening two or more accounts in my name?

Under the PPF Scheme, this is not permitted. You can hold and operate only one account in your name.

What happens in the case of an inactive account?

You need to make a minimum contribution of Rs. 500, in a financial year for your account to remain active. If this is not done, it will be deemed inactive. To revive an inactive account, you will need to pay the holding branch a penalty of Rs.50 for every year the account was inactive. Plus, you will also have to deposit a minimum of Rs.500 for every year the account was inactive, as well as Rs.500 for the year you in which you are activating the account.

Will I continue to earn returns on an inactive account?

Interest will not be calculated for the years in which the account is inactive. After activation of the account, interest will be calculated on the balance amount left at the time of revival.

If I open a PPF account in my minor child’s name, can I claim tax deductions from both accounts when I file taxes?

The maximum investment cap of Rs.1.5 lakhs applies to all investments you make to your account, your minor child’s account and/or your spouse’s account, collectively.

Suppose I wish to invest more money than the Rs.1.5 lakh limit?

The max limit for investment in this scheme is Rs. 1.5 lakh per year and one cannot make anymore investments in the same.

How is interest calculated?

For any given month, investments made on or before the 5th will be considered for interest calculations for that month.

Can I open a PPF account on my grandchild’s behalf?

Grandparents cannot open PPF accounts in their grandchildren’s names. However, in case of death of both parents of the minor child, the grandparents, as guardians of the child, can open and operate a PPF account for the minor child.

Do I have to withdraw all the money in my account at the end of 15 years?

It is not necessary to redeem all the funds held in the account at maturity. Five-year extensions can be made by depositing fresh funds or without making any further deposits.

Will I continue to earn interest on my account if I extend the maturity period beyond 15 years?

Interest will be calculated and paid based on the interest rates prevailing during the period of extension.

What happens if I die before the maturity of the PPF account?

It can be claimed by nominees or the legal heirs. If a nominee was named by the account holder, he/she would receive the entire amount. If more than one nominee was named, they would receive funds as stated by the account holder in the nomination form.

If I deposit money in my wife’s PPF account, can I claim a tax deduction?

Yes. Contributions made to an account holder’s own account, his/her spouse’s account or his/her minor child’s account can be claimed as deductions.

Can I get loan facility with my PPF investment?

You can opt for a loan facility between the third year and sixth year. The loan carries interest and is to be repaid. From the seventh year onwards, you are allowed to make partial withdrawals.

Can Hindu Undivided Families (HUF) or a Body of Individuals (BoI) invest in PPF?

No, at present this is not permitted.

Do PPF accounts come under the Wealth Tax?

PPF accounts are exempted from the Wealth Tax.