Public Provident Fund (PPF)

Here comes the darling of all the Post Office Schemes. The Public Provident Fund (PPF) has many benefits. It can be used both as an Recurring Deposit and as well as a tax saving investment. It has many benefits. But it is a long term investment scheme spanning over 15 years.

Opening Of Account

PPF Account can be opened by any adult in his/her names or as guardian of a minor.

Such account can be opened in any Head Post-Office, G.P.O., any Selection Grade Post Office, any branch of the State Bank of India and selected branches of other Nationalised Banks.

Amount of investment

Minimum   : Rs.     500 in a financial year
Maximum  : Rs. 70,000 in a financial year
Deposits can be made in lump sum or in12 monthly installments.

Rate of Interest

Deposits are payable on maturity after 15 years along with interest at the rates declared by the Government from time to time. The rate declared w.e.f.1-3-2003 is 8% per annum compounded annually.

Loans and Withdrawals
  • Loans can be availed from the 3rd financial year excluding the year of deposit . Amount of such loans must not exceed twenty five per cent of the amount that stood to his credit at the end of the second year immediately preceding the year in which the loan is applied for.
  • There is also facility to obtain withdrawal of a part of the balance after the expiry of 5 financial years from the end of the financial year (7th Financial year) in which the first subscription has been made. 
  • Such withdrawal may be made only once in a financial year and shall be limited to 50% of the balance at the close of the fourth year immediately preceding the year of withdrawal or at the end of the preceding year, whichever is lower, less the amount of loan, if any which remains to be repaid.
Maturity Period
  • The normal maturity period is 15 years from the close of the financial year in which the initial subscription was made. 
  • An account, on the expiry of 15 years, may be extended for every block of 5 years.
Tax Relief
  • Interest earned is completely free from Income Tax under section 10(a)(i)
  • Contribution to PPF is allowed as deduction under section 80C

Deposits in this account are not subject to attachment under an order or a decree of Court and are also free of Wealth Tax.
Tax benefits make it more attractive

The only disadvantage that I notice is the long duration of 15 years. But we can make sure that it is not a disadvantage.

My suggestions are:
  • Start a PPF account in SBI or a Post Office at your early age (even at the age of 16)
  • You can start an account on your minor child also
  • Start contributing whatever is possible in the initial years and increase over a period.
  • Start contributing on a monthly basis like a RD.
  • Please make sure that your amount is credited to your account before 5th of the month, to earn interest for that month.
Given the bank deposits are giving around 6% without tax benefits, a Tax Free interest @8% is worth investing for your investment. With tax benefits (for contribution and also on interest) it is an excellent investment avenue.



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