This makes it the safest option of investment with most minimal risk and guaranteed returns. It is the most popular small savings scheme as it serves as retirement savings instrument for investors.
Any Indian Citizen is eligible to for availing the PPF account benefits.
PPF Account Features
The PPF account features are as below:
- Only Rs. 100 Required to Open A PPF Account
Individuals can open a PPF account with a minimum initial deposit of Rs. 100. The account can be easily opened with SBI or the nationalised banks which provide the PPF service. It can also be opened at any Post Office branch or online through internet banking. Only one account per individual is allowed. The PPF account benefits can be availed by minors too where the account can be opened in their names by their guardians.
- Lowest Risk Factor
Since PPF is backed by the government of India, the risk of default is minimal and safety of capital is guaranteed.
- Investment Limits
A minimum deposit of Rs. 500 is required to be made during one financial year. Similarly, the maximum deposit that can be made during one financial year is Rs. 1.5 Lakhs. The amount can either be deposited in installments or in one go. One cannot exceed more than 12 installments annually. An interesting PPF account feature is its flexibility as one can vary the deposit amount and number of installments as per convenience. The account will be discontinued if the required minimum amount is not deposited. The account can be revived after paying the default fee. However, even if the account is discontinued, the interest will continue to accrue.
- Calculation of Interest in PPF Account
The PPF interest rate is compounded annually and credited on March 31 every year. The interest rate is computed on the lowest balance available in the account from the 5th of every month to the last date of each month. So to grab the most of the PPF account benefits one can plan to maximise deposits during the 1st and 5th date of every month.
- Premature Withdrawal
The lock in period of PPF account is 15 years and the entire amount can be withdrawn from the account only after maturity of the account. However PPF account allows premature and partial withdrawal of funds in case of financial crisis. The withdrawal amount has certain limits. The premature withdrawal can be made from the 7th year from the year of opening account. Withdrawals can be done only once in a year. The amount withdrawn must not be more than 50% of the total balance at the commencement of the fourth year or fifty percent of the balance of the preceding immediately year (whichever is lower). In case of death, premature closure of the PPF account can be done.
- Tax Benefits
This is one of the key PPF account features for which the PPF is so popular. The investment amount in the PPF is qualified for deduction under the Section 80-C of the Income Tax Act. Moreover, the entire maturity amount along with the interest earned is completely tax free. The PPF deposits are exempted from wealth tax also.
- Loans on PPF Accounts
Individuals can avail loan facility on their PPF accounts. This loan amount must be repaid within the span of 36 months. Loans on PPF account can be availed between the 3rd financial year and the 6th financial year from the year of opening of account. The loan amount can sum up to 25% of the total account balance at the end of the second year preceding immediately the year of application of loan. The interest rate on the loan will be 2% higher than the prevailing PPF interest rate. A 2nd loan can be availed before the 6th financial year from the year of opening of account only in case the first loan is fully repaid.
- Extension of the PPF Tenure
The tenure of any PPF account is 15 years. However there is provision to extend this tenure with or without further subscription. The extension is done in a block of 5 years. The deposited amount will continue to earn the interest rate applicable to the PPF account till the closure of the account. If account is extended and there fails to be any further deposits in the account, any amount can be withdrawn from the account without any restrictions.
If the deposits are continued in the extension period, the ppf account provides the benefit of withdrawal of 60% of the account balance at the beginning of each extended period.