All about Public Provident Fund (PPF Account)

What is a PPF account?

Public Provident Fund (PPF) is the scheme floated under the PPF Act 1968 by central government. PPF is one of the safest investment product backed by Government of India and also gives tax benefit under section 80(c) of the Income tax act.

Features of Public Provident Fund

  • PPF account can be opened with minimum Rs. 100 in a post office, any SBI branch and other authorized offices like ICICI bank and Union bank of India. You can now open an online ppf account with ICICI.
  • Minimum investment in a financial year is Rs. 500 and maximum is Rs. 1,50,000. This investment up to 1,50,000 is eligible for rebate under section 80 C of the IT Act. Deposit in PPF account can be made in either one go or in installments. But you can not deposit more than 12 times in a year.
  • If you forget to contribute the minimum amount in any year then the account will be deactivated. To activate you need to pay Rs.50 as penalty for each inactive year also you need to pay Rs.500 for each inactive year’s contribution.
  • Maximum tenure for PPF account is 15 years. Post 15 years you can extend your account in block of 5 years.
  • Loan facility available from 3rd financial year upto 5th financial year. The rate of interest charged on loan taken by the subscriber of a PPF account on or after 01.12.2011 shall be 2% p.a. However, the rate of interest of 1% p.a. shall continue to be charged on the loans already taken or taken up to 30.11.2011. Loans could be taken from the third year onwards till the sixth year. Up to a maximum of 25 per cent of the balance at the end of the 2nd immediately preceding year would be allowed as loan. Such withdrawals are to be repaid within 24 months.
  • Withdrawal permitted from 7th financial year. You can withdraw only once a year and such amount should not exceed 50% of the balance at the end of 4th year or 50% at the end of immediately preceding year, whichever is lower. Premature closure of PPF account is possible in case of death of the individual.
  • Interest is paid on lowest amount between 5th and 30th of each month, so you should try to deposit in PPF between these 1st and 5th of the month. Interest is compounded annually and credited on March 31 each year.

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PPF Interest Rate

Reserve Bank of India from time to time specifies the rate applicable to the PPF account. Rate of interest w.e.f. 01.04.2013 is 8.7% p.a. You can check the latest notifications by RBI about changes in PPF interest rates here.

Comparison between historical PPF interest rate and Fixed Deposit interest rates

Bank Deposit (avg.)
Year/Rate PPF Before Tax After Tax
2000 12.0% 10.0% 7.0%
2001 11.0% 9.0% 6.3%
2002 9.5% 8.0% 5.6%
2003 9.0% 7.0% 4.9%
2011 8.0% 8.8% 6.1%
2012 8.6% 9.0% 6.3%
2013 8.7% 9.0% 6.3%

It is clearly evident that PPF account gives considerably higher return than bank deposit rates

When should you open a PPF account?

  • You should open a PPF account as early as possible. Even when you are a student, you should open a PPF account with min. Rs. 500 deposit. This is helpful as you can see that withdrawal is allowed only 7th year onwards and if you open an account early, you will be able to pass the block period in initial years only.
  • You should also consider your future cash requirement before blocking large sums in PPF account as withdrawals have restrictions.

How to open PPF Account

  • To open PPF account, first you need to open a saving bank account in the designated branch of SBI or other approved banks.
  • Following documents are required to open PPF Account
    • Account opening form duly filled (this can be taken from the designated bank branch)
    • ID proof – PAN Card, Passport, Driving license (as per bank KYC norms)
    • Address proof – utility bills
    • Two recent photographs
    • All documents should be self attested
  • It is preferable to open a PPF account with a bank then post office as with banks you can deposit money in your PPF account online. This is really helpful if you have relocated from the city of your home branch.

How to open PPF Account Online

  • First condition is same in this case as well. You will need to open a saving banks account.
  • Then you need to login to your saving bank account online panel and apply from there. Below is a online application form for ICICI bank:

ppf account

  • Online form once submitted is to be printed, signed and to be deposited in the nearest bank branch.
  • Such online account is linked to your saving account and you can easily see your PPF balance online.

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