Whenever we talk to a financial planner about safe and secure Investment, he says open a PPF account. If you seek advice from an experienced man, he says PPF Scheme is the most reliable. Tax consultant also says that it leads to better tax saving. But if this scheme is so good then why its hoarding does not appear anywhere. Why its advertisement does not appear on TV and why the bankers never even discuss it!
It is natural for you to be confused. But we will not confuse you like this. Because in this post we will tell you every little big thing related to PPF. From Interest Rate to Lock-in-Period and also explain why there is no publicity about this good scheme and also we will discuss how you will earn more interest from PPF.
Before discussing let us start with the basic knowledge about PPF Scheme.
What is PPF Scheme?
Full form of PPF is “Public Provident Fund”. It is a savings scheme that offers good interest as well as tax savings. This scheme is run by the government itself and also pays the interest.
Public Provident Fund was established by the Government of India in 1968. The objective was to give unorganized sector employees who do not have EPF, Pension etc. facility a chance to save money for their future. The government kept PPF free from all kinds of taxes so that more and more people could adopt this scheme.
PPF scheme is run by the government through its post offices and banks.
Eligibility And Investment Limit of PPF
The best thing about PPF is that it can be opened by any citizen of the country. Whether you are a serviceman, businessman or farmer, you can open your account in it. Even there is no age limit. You can also open a PPF Account for your child.
But, keep in mind that you can only open a PPF Account in your name. If you already have a PPF account in your name, you can neither open a joint account with your name nor with anyone.
You can never open another account in your name in your entire lifetime. If ever another PPF Account is found in your name then the other account will be deactivated immediately. There will be no interest rate given on the deposit amount in that particular account.
Who are not eligible to open PPF Account
NRI i.e. ‘Non Resident Indians‘ has no facility to open PPF account. However, if you had opened a PPF account while being a citizen of India, you can keep it till the expiry of the account period (15 years).
According to the new PPF rule for NRIs, you have to withdraw the entire amount from this account immediately after completing 15 years of the account. But if you do not withdraw money, you will get interest at the rate of savings account.
What is the Minimum and Maximum Amount You can Invest
It is necessary to deposit at least five hundred rupees (Rs 500) in a PPF account every year. While a maximum of One lakh Fifty Thousand (Rs 1,50,000) can be deposited in this account during a financial year.
Keep in mind that PPF is calculated according to the financial year. This means that one year starts from April 1 and ends on March 31 next year.
What if you can’t deposit the minimum amount
It may happen that in a year you are not able to deposit a minimum of Rs 500 in your PPF account. In that case, your PPF account will become inactive. To activate it, you have to deposit at least five hundred rupees for the remaining year.
Not only this, you have to pay a penalty of Rs 50 for every one year delay. Only then will your account will be activated again.
However, even if the account is inactive, you will continue to get the interest on your deposit. It will not be affected at all.
How many Times You can deposit in PPF
By the way, these questions should not come up. Because you know vey well that there is no limit on how many times money can be deposited in any scheme. You can deposit or withdraw money in the savings account as many times as you like. Mutual fund schemes also have no such limit needed.
But you could not deposit more than 12 times in a year in a PPF account. PPF had these rules from the beginning. But in 2019 the rules changed and now this limit has been abolished. Now you can deposit money in PPF account as many times as you want.
Maturity of PPF Scheme
The maturity time of PPF scheme is very long. In this scheme, money is refunded after 15 years of opening this account.
Apart from insurance and pension schemes, there is hardly any scheme that matures after so many years. But the government has deliberately kept a long lock-in period. Because the purpose of this scheme is to raise money for retirement. Being long term, this money is not spent on unnecessary things.
You have to deposit money every year during the 15 year period of PPF. By the way, if you need money in the meantime, you can take a loan from a PPF account. Not only this, after seven years you also get the facility of partial withdrawal. We will tell you further about the rules of loan and partial withdrawal.
PPF Account Extension
By the way, PPF account matures in fifteen years, but like Sukanya scheme, there is no compulsion to withdraw money after maturity. You can extend your account again for the next five years. Once these five years are over, you can then extend your account for another five year block. This sequence can last a lifetime.
You will continue to get interest as before even during the PPF extension. The account will also have a five-year lock-in period but this will only apply to new investments. Feel free to withdraw money already deposited.
By the way, if you want, you can continue to forward the PPF account without depositing any new amount. But the benefit of tax deduction will be available only if you forward your account with the condition of deposit. In that case you will get tax exemption on your deposit.
By filling up Form H before the maturity of one year after maturity, you can get the facility to extend the account period by five years. If you want to extend the period even further, you have to fill Form H every five years.
But if you do not fill in any form, the account will be automatically extended. But you will not be able to deposit any new money in it.
Rate of Interest
PPF is a government scheme and the government generously pays interest on it and that is why the interest rate on PPF is much higher than the bank’s fixed deposit. At present, the bank is getting an interest rate of around 5-6% on FD. But the interest rate of PPF as of now is 7.1%.
By the way, the government reviews the interest rate of PPF every three months and usually try to keep its rate attractive.
Interest calculation of PPF account is done at the end of the financial year. That is, every year on March 31, the interest is calculated and added to your balance. However, interest is calculated on a monthly basis. It is seen what was the minimum amount in the account between the last day and the last day of a month. Interest is calculated on the same amount.
Now finally the question comes how to earn more money from PPF Account. So, here are the points to discuss about this.
How to earn more money from PPF
Deposit money before the 5th of the month
Most people do not know, the interest of Public Provident Fund is calculated from the balance of the calculation on the 5th of the previous month. Let me tell you in simple words, this means that if you deposit money after the 5th, you will get less interest that month.
The best way to get good returns from a PPF account
The best way to get a good return from a PPF account is to deposit money on April 1. We suggest depositing all the money with a lump sum. If you do not have a lump sum, deposit the money before the 5th. We suggest depositing the lump sum on April 1, as the highest interest rate in the provident fund is currently 7.1%, while in Fixed deposit it is nearly 6%.
How much money will you lose?
There are many people who asks How much will I lose if I do not deposit before the 5th of every month? If you proceed on the assumption that the entire amount which is to be deposited as 1.5 lakh amount and you have deposited it for a period of 15 years and you also deposited the money after the 5th date, you will incur a loss of around Rs. 30000..Isn’t that big amount. Yes it is..
Highest Interest Rate
If you are 20 to 30 years old and you have never deposited money in PPF then you should do this job. Because here you will get higher interest rate from the bank. The highest interest rate in State Bank of India is 7.1 percent. By the way, the government keeps reviewing the interest rate, although every quarter the government reviews the interest rate on small savings, but we do not think that the interest rates of PPF fall below the bank deposit rates ever.
Double Tax Benefit
There are very few tools in our country that offer the benefit of two-way savings in tax. PPF allows you to avail tax benefits under Section 80C of the Income Tax Act and Interest income is also tax free. It is your advantage in every way. You can deposit a maximum amount of Rs 1.5 lakh at a time in PPF. Therefore, we suggest that you keep this entire amount, 1.5 lakh in one place, so that you get convenience in income tax and also higher interest rate.
Making money for retirement
It is also important to remember that with a lock-in period and a tenure of 15 years, if you are building a corpus for yourself, go ahead and invest in one of the best fixed interest products in the country.
Most Safe and Secure
The safest is a government-owned scheme and is therefore one of the safest and secured investment schemes in the country. So go and invest in a public provident fund to save more money for sure.
PPF gives returns above inflation
At present, the government is paying 7.1% interest on PPF. This interest rate will be considered good. Because you get much less interest on bank deposits and with this interest rate, you can easily beat inflation.
In 2020, interest rates on long-term FDs of most government banks remained 5-6%. Here also PPF is giving comparatively 1% more return.
You can take a loan from a bank or financial institution based on the amount deposited in your PPF. This will be just 1% more than the interest you are getting on PPF.
Where Can One open a PPF Account?
- You can open PPF Account in SBI. Its allied banks also have the facility.
- PPF Account opening facility is also available in selected branches of some Nationalized Banks
- PPF Accounts can also be opened in selected Post Office.
Document needed for opening a PPF Account
- PPF Account Opening Form
- Passport Size Photograph
- ID proof: Copy of PAN card/ Voter ID/ Aadhaar /Driving License
- Residence proof: Passport / Electricity Bill/ Ration card /Bank Passbook ETC
I hope you have liked this article about what is PPF and how to earn more money from PPF. It has always been my pleasure to provide complete information about the topic to the readers, so that they do not have to search in other sites or internet in the context of that article. This will also save their time and they will also get all the information in one place.
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