An In-Depth Guide to the Public Provident Fund (PPF) Account in India
The Public Provident Fund (PPF) is a savings-cum-tax-saving scheme introduced by the Government of India to mobilize small savings. Initiated by the National Savings Institute under the Ministry of Finance in 1968, the PPF scheme offers investors a long-term investment option with assured returns and tax benefits.
The Objective and Benefits of the PPF Scheme
The primary objective of the PPF scheme is to encourage individuals to save and invest in the long term. By providing an investment opportunity with reasonable returns, the scheme helps in accumulating savings over a period. Furthermore, the interest earned on the PPF account is tax-exempt, making it an attractive option for individuals looking to save for the future while also availing tax advantages.
The PPF scheme has seen several amendments, with the most recent being the PPF Scheme 2019, introduced by the Government on 12 December 2019. This scheme offers a flexible framework for small savers to invest and build their financial security.
How the PPF Account Works
Minimum and Maximum Deposits
For the PPF account, the minimum deposit requirement is Rs. 500, with a maximum amount of Rs. 1.5 lacs per financial year. The interest earned on the deposited amount is compounded annually, and it is reinvested, allowing the account to grow over time. This feature of compound interest ensures that the corpus grows at a faster rate than simple interest.
It is important to note that the interest rate is declared by the Ministry of Finance Government of India every quarter. The interest earned during the financial year is paid collectively in March. The recent interest rate from April 2022 to June 2022 stands at 7.1%, which coincidentally matches the interest rate for the April 2021 to March 2022 period. Historically, the highest interest rate for the PPF account was 12% from April 1968 to January 2000, after which it has shown a decreasing trend but remains beneficial for long-term investments.
Maturities and Withdrawal Options
A PPF account has a tenure of 15 years, during which the initial deposit and the interest earned continue to accrue. Once the account matures, there are three main options available for managing the funds:
Full Withdrawal Option: Withdrawing the entire amount, including the interest accumulated, is one choice. This option allows for the complete withdrawal of the savings and the interest earned. No Withdrawal Option: The account can be kept without any further deposits or withdrawals. A holder can choose to withdraw the amount of their choice once a year, while the remaining amount continues to earn interest. Continuous Investment Option: The account can be kept open for further investments. This requires submitting a form to the bank within one year of maturity. After choosing this option, a person can withdraw up to 60% of the amount at the beginning of the first year, followed by one yearly withdrawal. This option is ideal for individuals who do not need the money and wish to continue investing for their future or for future generations.Why Invest in PPF?
Investing in PPF offers several advantages, including steady growth, assured returns, and tax benefits. It is particularly beneficial for individuals who want to save for the long term and are looking for a secure investment option. The PPF scheme is backed by the central government, adding an additional layer of safety to the investment.
To learn more about the benefits of the PPF scheme and how to get started, visit Pensionbox or sign up now to be a part of the Pension Movement. Together, we can bring about a change in the substandard pension structure in India and build a better future for ourselves and our families.