Why should you open a PPF account? Know its benefits and how much return you get
Public Provident Fund (PPF) account is a popular investment option for investors who want to save for long-term financial goals. Interest rates on PPF are declared by the government every quarter. Through PPF, it becomes easier to raise money for retirement or children's higher education. PPF is actually a savings scheme of the Government of India. It offers guaranteed returns and tax benefits. PPF account holders can invest in multiples of Rs 100 up to a maximum of Rs 1.5 lakh annually. PPF account can be opened only at one place, either bank or post office.
Benefit of interest rate and tax exemption
Higher interest is also available on PPF account. The interest rate on PPF account currently stands at 7.1% per annum, which is higher than most other fixed income investment options like bank fixed deposits, savings accounts and post office schemes. Under the EEE (Exempt-Exempt-Exempt) model, the contributions made to the PPF account, the interest earned on the account and the amount received on maturity are all tax free. This makes PPF one of the most attractive investment options for individuals looking to save tax.
Provision for taking loan
Another advantage of opening a PPF account is that a person can take a loan against his account balance. PPF account holders can take loan from the third financial year of account opening till the end of the sixth financial year. The loan amount can be up to 25 percent of the account balance at the end of the second previous financial year. Loans taken against PPF account come with comparatively low interest rates, usually around 1%. The loan must be fully repaid within 36 months, and the interest accrued on it must be paid as a lump sum along with the principal amount at the time of repayment.
Partial withdrawal facility also
Apart from tax benefits and loan facilities, PPF also offers partial withdrawal facility. After completion of five years from account opening, one can withdraw a part of the balance in the PPF account. According to ICICI Direct, the partial withdrawal amount is limited to 50% of the balance at the end of the fourth year preceding the year of withdrawal or 50% of the balance at the end of the immediately preceding year, whichever is lower. Partial withdrawal can be made once every financial year. Partial withdrawals can be made for purposes such as medical emergencies, higher education and to meet other financial needs.
PPF period can be extended further
Makes PPF account a preferred option among investors. PPF account comes with a minimum lock-in period of 15 years, which can be extended indefinitely up to 5 years. This means that even after completion of 15 years, investors can continue to keep their account active and earn tax free returns on their investments. By opting for tenure extension, investors can continue to enjoy the tax benefits of the PPF account. Investors can also continue to make fresh deposits into their account, subject to an aggregate limit of Rs 1.5 lakh per year.
PPF account for minors also
If someone is a minor then he can also open a Public Provident Fund (PPF) account. This is a great way to start saving for the future. PPF is a long-term investment option, and starting early can help build a significant corpus over time. The account can be opened only by the parent or legal guardian of the minor. The minor must either be a resident of India or an Indian citizen living abroad. The account will be in the name of the minor, with the parent or legal guardian acting as the guardian of the account.
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