Public Provident Fund: PPF Planning, Advantages of PPF account ,PPF account Rules ,Public provident fund interest rate
Public Provident Fund (PPF) is a government supported long-term, small savings scheme of the Government of India .
This scheme was initiated with the purpose of providing old-age income protection to the employees in the unorganized sector and self-employed individuals as they do not invest in Employee Provident Fund (EPF).
In fact, PPF is a perfect medium for long term investment in debt class /fixed income group as an important retirement saving instrument for the persons who are not salaried employees. PPF account uses the benefits of power of compounding.
Advantages of PPF account
As PPF account is backed by the Indian government therefore the capital invested in PPF account is protected against all frauds. PPF is risk-free account.
Public Provident Fund is an investment which falls under the Exempt-Exempt-Exempt (EEE) category .The amount which is deposited in Public Provident Fund is subject to be deductible (Section 80C of the tax Act).
The interest on accumulated amount is exempt from tax after you withdraw the money .
The maturity tenure of PPF is 15 years. Once PPF account arrives at maturity, you’ll be able to withdraw the whole maturity amount. As per procedure the entire deposit amount together with the interest accrued is disbursed to your account.
However, just in case you’re in urgent need of cash, you’ll be able to partially withdraw from the seventh year onwards.
As per withdrawal rule of PPF, you’ll do a premature withdrawal of up to 50% of the whole amount available in your account after the fourth year. This withdrawal facility can be availed on one time basis.
The procedure to withdraw Funds from Your Public Provident Fund
You may follow these steps to require out money from your Public Provident Fund account:
Step 1: You must fill form for withdrawal with Form C and submit all the required information.
Step 2: Then, submit the request application to the specified bank branch where your PPF account is.
Public provident fund interest rate
The rates for PPF account keep on changing. The interest on PPF account is paid on March 31.
Finance Ministry fixes the PPF interest rate on a yearly basis. The calculation of interest is done on the minimum balance available in PPF account between the close of the fifth day and the last day of the month.
- Guaranteed returns
The returns are guaranteed as this is govt scheme and debt structure
- Extension available
PPF account has a maturity period of 15 years. However, this tenure can be extended fr the time the account holder desires.
The only limitation is that the extensions can be done for 5 years at a time.
For example. if an account which is going to mature on March 31st 2023,It can be further extended till March 31st 2028. If you want to extend the account further ,the next extension will be till until 31st March 2033 and so on.
- Compound Interest
The interest on PPF is compound which results in compounding of money in long term .
- Flexi mode of deposit: PPF deposit has multi modes. You may deposit cash ,cheque or demand draft
|YEAR||RATE OF INTEREST (%)|
|1968-69 TO 1969-70||4.8|
|1970-71 TO 1972-73||5|
|01.04.1974 TO 31.07.1974||5.8|
|01.08.1974 TO 31.03.1975||7|
|1975-76 TO 1976-77||7|
|1977-78 TO 1979-80||7.5|
|1981-82 TO 1982-83||8.5|
|1986-87 TO 1998-99||12|
|01.04.1999 TO 14.01.2000||12|
|15.01.2000 TO 28.02.2001||11|
|01.03.2001 TO 28.02.2002||9.5|
|01.03.2002 TO 28.02.2003||9|
|01.03.2003 TO 30.11.2011||8|
|01.12.2011 TO 31.03.2012||8.6|
|01.04.2012 TO 31.03.2013||8.8|
|01.04.2013 TO 31.03.2016||8.7|
|01.04.2016 TO 30.09.2016||8.1|
|01.10.2016 TO 31.03.2017||8|
|01.04.2017 TO 30.06.2017||7.9|
|01.07.2017 TO 31.12.2017||7.8|
|01.01.2018 TO 30.09.2018||7.6|
|01.10.2018 TO 31.06.2019||8|
|01.07.2019 TO 31.03.2020||7.9|
|01.04.2020 TO 31.03.2022||7.1|
public provident fund current interest rate : 7.1 %
Drawbacks of PPF account
You may check some limitations before depositing in PPF account
- Lack of Liquidity
- Long time for investing -15 years
- Just beats the inflation
- Single account can be opened for one person
- Indian citizenship is requirement
As per the discussion of both advantages and drawbacks, your may deposit a portion of your saving in PPF account as a safe money as per your financial planning and asset allocation.
This amount deposited in PPF will be immune from ups and downs of the market .
However the interest rate of 7.1% is not sufficient interest to beat inflation and grow the money fast .For long term, you as an investor should check for equity investments as per your risk profile.