PPF is a long term saving scheme provided by Govt of India. It is helpful in building a lump sum corpus of retirement or any other purpose and is safe, govt backed and tax free scheme. It comes under EEE category meaning fully exempted from tax. It provides a guaranteed return on your contribution. Interest rate offered varies as per govt decision quarterly. Current interest rate is 7.9% per annum.

Account opening and tenure of scheme:

Any individual can open a PPF account either with Bank (both public & private) or Post office but he/she can have only one PPF account in his/her name. Also no joint account is allowed. Persons already contributing through General Provident fund and Employee Provident Fund through their employer can also open a PPF account and invest.
Nowadays one can open PPF account and also contribute online, gone are the days when you have to queue up in Post office /banks for account opening and to do you contribution. You can apply online PPF account from any of the banks and submit the required document and operate your online PPF with ease. It is always prefer to have your PPF account with the bank you already have a saving/salary bank account so that automatic monthly investment can be done to your PPF account through standing instruction in this way you will not have to queue in the banks for contributing to your PPF account and also standing instruction to your PPF account will help in a disciplined investing. All you need is to determine how much you want to save in your PPF account depending on your monthly salary, tax calculation and asset allocation and then give a standing instruction online to the bank to deduct that much monthly amount and transfer it to your PPF account. If you don’t want to contribute each month you can directly transfer money to your PPF account from net banking feature of your saving account. Note minimum deposit required per financial year to keep account running is 500 Rs, Deposit can be of maximum 12 instalments per year and need not be every month. Maximum deposit and tax exemption limit under 80 C is fixed at 1, 50,000 Rs per financial year.
PPF account matures in 15 years, one can withdraw the entire amount after the completion of 15 financial years, and 15 years is counted from end of the financial year in which account was opened.

Benefits:

Interest on PPF account is calculated on monthly basis and on the lowest balance of account after the 5th day of month, hence if you are doing monthly deposit or lump sum deposit do it before 5th of the month and if you’re doing one lump sum contribution do it in month of April and before 5th to get maximum interest on your contribution.
PPF account gives you compounding benefit and gives you great returns if more and more amount is invested in early years.
You can also avail loan facility based on your contribution to PPF.

Pre-mature closure:

Although pre mature closure is not recommended you can always do minimum yearly contribution currently 500 Rs and keep your account active. But PPF account can be closed before its maturity only if your account completed 5 years and is only permitted in genuine cases like for higher education of children, illness etc. Also penalty of 1% in interest rate will be levied if premature closure is done.

Maturity:

PPF account have maturity period of 15 years after that you have three options:

1. Withdraw the full corpus and close the account.
2. Extend the PPF account with deposit within 1 year from the maturity date; in this case account will be extended in block of 5 years with no limit on no. of such extensions. All other condition of deposit is same in this block period. One withdrawal is permitted per year in this block of extended period subject to withdrawal limit of 60% of account balance at the start of the extension period.
3. Extend the PPF account without deposit within 1 year from the maturity date; in this case account will be extended in block of 5 years with no limit on no. of such extensions. One withdrawal is permitted per year in this block of extended period with no limit on withdrawal amount; the amount remaining will continue to earn interest.

My Take:

PPF is a very good long term saving scheme. Although the interest rate offered is on declining trend but still this scheme offer best rates and its safety and compounding benefit gives you edge over other schemes. I would suggest everyone to have this account and contribute regularly especially more in staring years when expenses are less. Salaried people who are offered Voluntary Provident fund (VPF) scheme can contribute in VPF in place of PPF if they are contributing for tax saving purposes only. For non-salaried or people without VPF schemes PPF is one of the top scheme to build a corpus for your future need.

Disclaimer: This blog is intended to provide you the general information only and not exhaustive. It is an awareness initiative and does not provide any investment advice and endorsement of any product or scheme.