PPF investment- Rate, eligibility, process to open account

PPF investment-Things you should know: The Public Provident Fund (PPF), which was introduced for the first time in India in 1968, was created to encourage small contributions for use in investments and returns. It can also be referred to as an investment strategy that lowers yearly taxes while allowing for the accumulation of retirement funds. A PPF account should be opened by anyone looking for a secure investment option to reduce taxes and earn guaranteed returns.

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Why PPF is important?

PPF (Public Provident Fund) is regarded as a great investment choice, especially for those who are unwilling to taking risks. Because they are market-dependent, the returns might not be very high, but they do offer stability. PPF investments also have tax advantages and can help diversify your portfolio.

A long-term investment option that provides a tempting rate of interest and returns on the amount invested is the Public Provident Fund (PPF) scheme. The returns and interest received are not subject to income tax. Under this program, a PPF account must be opened, and any deposits made throughout the year qualify for section 80C deductions.

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Eligibility criteria to open PPF account:

• Any Indian citizen can invest in PPF.
• One citizen can have only one PPF account unless the second account is in the name of a minor.
• NRIs and HUFs are not eligible to open a PPF account. However, if they have an existing PPF account in their name, then it shall remain active till its completion date. However, these accounts cannot be extended for 5 years as in the case of Indian citizens.

What is the interest rate on PPF Investment?

The current PPF interest rate is 7.1% p.a. that is compounded annually.

The Finance Ministry set the interest rate every year, which is paid on 31st March. The interest is calculated on the lowest balance between the close of the fifth day and the last day of every month.

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Features of PPF account:

• Opening balance: The account can be opened with just Rs 100 a month. Annual investments above Rs 1.5 lakh will not earn interest and will not be eligible for tax savings.
• Deposit frequency: Deposits into a PPF account have to be made at least once every year for 15 years.
• Mode of deposit: The deposit into a PPF account can be made either by way of cash, cheque, demand draft (DD) or through an online fund transfer.
• Tenure: The PPF has a minimum tenure of 15 years, which can be extended in blocks of 5 years as per your wish.
• Investment limits: PPF allows a minimum investment of Rs 500 and a maximum of Rs 1.5 lakh for each financial year. Investments can be made in a lump sum or in a maximum of 12 installments.
• Risk factor: Since PPF is backed by the Indian government, it offers guaranteed, risk-free returns as well as complete capital protection. The element of risk involved in holding a PPF account is minimal. As the returns from PPF accounts are fixed, they are used as a diversification tool for the investor’s portfolio. 
• Tax benefit: The PPF interest and maturity amount are tax-free under section 80C of the Income Tax Act, 1961.
• Partial withdrawal: PPF amount can be withdrawn partially from the seventh financial year onwards.
• Nomination: A PPF account holder can designate a nominee for his account either at the time of opening the account or subsequently.
• Joint accounts: A PPF account can be held only in the name of one individual. Opening an account in joint names is not allowed.

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Process to open a PPF account online:

Step 1: Log into your bank account on the internet banking or mobile banking platform.

Step 2: Select the ‘Open a PPF Account’ option.

Step 3: If the account is for self, click on the ‘Self Account’ option. If you are opening the account on behalf of a minor, select the ‘Minor Account’ option.

Step 4: Enter the relevant details in the application form.

Step 5: Key in the total amount you want to deposit in the account per financial year.

Step 6: Submit the application. An OTP will be sent to the registered mobile number. Enter it in the relevant field.

Step 7: Your PPF account will get created in an instant! Your PPF account number will be displayed on the screen. An email will be sent to your registered email address with all the details confirming the same.

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Tax benefits of investing in PPF:

One investment vehicle that fits into the Exempt-Exempt-Exempt (EEE) classification is PPF. In other words, this means that all PPF deposits are tax deductible in accordance with Section 80C of the Income Tax Act. It should be noted that the maximum PPF contribution for one financial year is Rs. 1.5 lakh.

In addition, there is no tax due when the accumulated funds and interest are withdrawn. The fact that a PPF account cannot be closed before maturity should not be overlooked.

A PPF account, however, can be transferred from one point of designation to another. But, do remember that a PPF account cannot be closed prematurely. Only in the case of the account holder’s demise can the nominee file for the closure of the account.

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