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11 Must Know things about Public Provident Fund

Vikas Sonigara | 24 Jun, 2013  | Follow Author | Add to my Favourites 
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Today, almost everyone who avails taxation benefits would be investing some part of the tax saving amount in Public Provident Fund (PPF).

As everyone knows PPF is a long-term, government-backed small savings scheme of the Central government. The scheme was primarily started with an objective of providing old age income security to the workers in the unorganized sector and self-employed individuals. This scheme has a  15 year lock in period and the enjoys a E-E-E status from taxation perspective i.e. investment amount is tax exempt, interest accumulated is tax exempt and withdrawal upon maturity is also tax exempt.

The interest rate for PPF will be 8.7% p.a. w.e.f. from 1st April 2013.

I have been asked many a times about different aspects of PPF and thought of writing a summary of all such queries. This would help first time as well as old investors to optimize their returns from the PPF scheme.

1. What is the best date to invest in PPF?

The best time to invest in your PPF account is before the 5th of any month. As per PPF rules, Interest is calculated for the calendar month on the lowest balance between the close of the 5th day and the end of the month. Hence even if you invest on 6th of a particular calendar month, you will not be paid any interest for that investment for that calendar month.

e.g. If one invests Rs100,000/- on the 6th of June, he would not be paid interest for the month of June for this investment. As such he would stand to loose Rs725 as interest for the month of June (assuming 8.7% interest rate)

2. What is the tax benefit of investing in PPF?

As per section 80C the amount invested in PPF account for a financial year is tax exempted. For that matter, even interest accumulated is tax exempt and withdrawal upon maturity is also tax exempt.

Due to such tax exemptions, PPF returns are way above Fixed Deposits giving the same interest rates as PPF.

For example, 8.7%, tax free yield from PPF is comparable to

Your Tax Rate
Actual PPF yield
Source: BSE

3. How many years is the PPF Account for? Is it extendable?

PPF scheme has a 15 year lock in period and you can withdraw upon completion of the lock in period. If you decide to extend your account and continue making fresh contributions, you can extend it for a block of 5 years at a time, as many times as you want. You can also extend the account without making any further contributions, and continue to earn interest on it every year.

4. What is the max and min amount one can contribute in PPF?

Maximum deposit is Rs1,00,000/- every year and minimum deposit is Rs500/- to keep the account active.

5. Can one have more than 1 PPF account?

No. One cannot have more than 1 PPF account.

6. In that case, if one cannot open 2 PPF accounts, can I open a PPF account for my HUF?

No. HUF are no longer eligible to open PPF a/c.

7. Can two adults open joint PPF account?

No. Two adults cannot open a joint PPF account. An account has to be opened individually with one or more nominations. .

8. Is PPF interest rate same every year? How is it calculated?

No. PPF interest rate is now decided every year. This change is as per the decision taken by government to link small savings returns with market rate.

Hence PPF interest rates will now vary each year and will be as announced by the government. It was 8.8% for FY 2012-13 and is 8.7% for FY 2013-14.

9. I have missed paying installment for 1 year. What should I do now?

You would need to pay a penalty of Rs50 and need to invest min Rs500 for each year that you missed your payments.

10. Can I withdraw from PPF account?

Yes. After the expiry of the 5th year from the date that the initial subscription is made, you become eligible to withdraw an amount of not more than 50% of the previous year’s balance or of the 4th year immediately preceding the year of withdrawal, whichever is less.

If you have taken any loan on your PPF, this also gets adjusted and your withdrawal eligibility decreases. Also one cannot make more than one withdrawal in a financial year.

11. Can I take a loan from my PPF account?

Yes. Loan facility is available from 3rd year upto 5th 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. i.e. for AY 2013-14 it will be 8.7+2= 10.7%.

However, the rate of interest of 1% p.a. over the PPF interest rate shall continue to be charged on the loans already taken or taken up to 30.11.2011.

Happy Investing!

About Vikas Sonigara
The author, an alumnus of IIT Roorke, has been an active investor for the past 15 years.He blogs about financial markets and various financial products at His articles aim to help audiences make informed and rational financial decisions.

The author can be contacted at [email protected]

Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. The author does not accept any liability whatsoever arising from the use of any of the above contents.

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