At PersonalFN, we pride ourselves on giving you the practical investment information you need, to help you make smart financial moves.
In this endeavour, we are pleased to invite you to our second Free-To-Attend WebSummit: PPF & You – Things You May Not Know About Your PPF. Just Click Here to Book Your Seat Now!
In 2010 we had written an article on the Public Provident Fund, which told investors key things they needed to know about the Public Provident Fund. We are going over these points in some detail here.
Let’s get started.
- How do I open a PPF account? What should I keep in mind when opening my PPF account?
Head over to your nearest State Bank of India branch, or a branch of any of State Bank’s subsidiaries.
You can also open an account in select nationalized banks, and the post office. Fill in the form, attach a photograph, state your PAN Number, and you’re done. Once your formalities are completed, you will receive a pass book which will record all your PPF transactions.
At any point in your life, you are allowed to have only 1 PPF account in your name.
You can also have an account in the name of a minor child of whom you are the parent / guardian. However that will be the child’s account, you will simply be the guardian. You can never have a joint account.
If at any time it is seen that you have more than 1 account in your own name, the second account will be deactivated, and only your principal will be returned to you.
If you have a General provident Fund account, or an Employees Provident Fund account, you can still have a PPF account – there is no restriction.
- Can I take a loan against my PPF account?
Yes. You can take a loan from the fund in case of need, you need not wait till you can withdraw from the account.
The first loan can be taken in the third year of opening the account i.e., if the account is opened during the year 2007-08, the first loan can be taken during the year 2009-2010. The loan amount will be restricted to 25% of the balance including interest for the year 2007-08 in the account as on 31/3/2008.
The loan must be repaid in a maximum of 36 EMIs
You can take a second loan against your PPF account before the end of your sixth financial year, but your second loan can be taken only once your first loan is fully settled.
- Can I make withdrawals from my PPF account? What is the schedule?
Yes, you can make one withdrawal per year starting from your seventh year.
The first withdrawal can be done after the expiry of 5 full financial years from the end of the year in which your initial subscription was made. This means that from the day you open your account, you will need to complete 6 full financial years before you can make any withdrawal.
Thereafter, you can make one withdrawal per year.
The amount of withdrawal will be limited to 50% of the balance at credit at the end of the fourth year immediately preceding the year in which the amount is to be withdrawn, or the balance at the end of the preceding year, whichever is lower.
For example: if you opened your PPF account on April 1st, 1993, you can make your first withdrawal after April 1st 1999, and the amount of withdrawal will be limited to 50% of the balance as 31st March, 1995, or the balance on 31st March 1999, whichever is lower.
The withdrawal amount is not repayable.
- What are my options once my PPF account matures?
This is something a lot of investors do not know. They are under the impression that you can either close the account, or extend it for 2 blocks of 5 years each. But actually this is not correct. You have 3 choices.
Either you can withdraw your maturity amount, or you can extend your account by a 5 year block, as many times as you want and make fresh contributions, or you can extend the account without making any further contributions, and continue to earn 8% interest on it every year.
If you decide to withdraw your money, your maturity value is exempt from tax.
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 make withdrawals from the account, up to 60% of the account balance that was there at the beginning of the extended period. Just remember, if you choose to extend your account, submit the necessary documentation for extension before one year passes from the maturity date.
If you choose to extend your account without making any fresh contributions, you can do so. In this case, any amount can be withdrawn without any restriction, however you can only withdraw once per year. The balance will continue to earn interest till it is withdrawn. On withdrawal, the PPF proceeds can be used to fund your life goals, such as your retirement, children’s higher education or marriage and so on.
When dealing with the PPF it is very important for you as an investor to keep yourself updated on the latest PPF rules. The onus is on the investor to know the rules, not the bank official you deal with.
Also, as with any investment, there are risks attached. Interest rates going forward are uncertain, and in combination with the very long tenure of this instrument, it is advisable to diversify your fixed income portfolio.
Keep yourself updated on both the pros and the cons of the PPF through our free-to-attend WebSummit: PPF & You. We look forward to having you there!