If you haven't already started on a long-term savings strategy, you could begin with a Public Provident Fund (PPF) subscription . A government-guaranteed fixed income security, this is very apt as a long-term savings instrument. Yearly subscriptions can be as low as Rs. 500 to as high as Rs. 70,000.
It counts being among the most secure investments you can have in this country. The interest earned on the PPF subscription is compounded; that means you not only earn interest in the money you put in, but you earn interest on the interest earned too. All the balance that accumulates over time is exempt from wealth tax.
A flip side, its an extremely illiquid investment instrument. Its lengthy lock-in period works out to 16 years since the last contribution is made in the 16th financial year. In all, the PPF is a very good savings instrument, and you should consider investing in it.
What is a Public Provident Fund?
The Public Provident Fund (PPF) Scheme is a statutory scheme of the Indian Government under the provisions of the Public Provident Fund Act, 1968.
Who can open a PPF account?
Any individual can open a PPF account, either for himself/herself or on behalf of a minor. Even if you are a part of a General Provident Fund (GPF) or Employees Provident Fund (EPF) scheme, you can subscribe to the PPF.
Where can I open a PPF account?
You can open a PPF account at any branch of the State Bank of India (SBI), its associated banks, such as the State Bank of Mysore or Hyderabad, or with some other nationalized banks. A PPF account can also be opened at any head post office, selected grade post offices, or a General Post Office (GPO).
As a depositor, you may find it easier to open an account at a post office instead of a bank. Banks may be reluctant to open PPF accounts because they do not earn additional fees to handle these accounts. The money invested in the PPF is credited to the Reserve Bank of India (RBI) the same day. You will be given a passbook where all subscriptions, accrued interest, withdrawals, loans etc. are recorded.
Can an individual have more than one PPF account?
No, an individual cannot have two PPF accounts in their name at the same time. Doing so will invite a penalty. If the issuing authority (bank or post office) detects two accounts during the tenure of the scheme, you will get back only the principal you put into the account, sans any interest.
Public Provident Fund (PPF): FAQ
Can an Non Resident Indian (NRI) open a Public Provident Fund (PPF) account?
Yes, there is no objection to Non Residents Indians opening PPF accounts out of monies held in their non-resident account in Indian banks.
What is the process of PPF account transfer from a bank to a post office?
Read to know the process of PPF account transfer from a bank to a post office
The State Bank of India/its subsidiary will issue an Account Payee cheque or a demand draft for an outstation transfer. The Account Payee cheque will be in favor of the transferee post office with a certified copy of the ledger and other concerned original records, such as the application for opening the account, signature cards, and nomination forms.
The cheque/draft will be drawn by designation and will indicate that it relates to PPF account number 'so-and-so. On receipt of the PPF account-on-transfer along with the cheque or draft from the bank, a PPF account will be opened at the transferee post office. The process is similar to that of the opening of a new account. The transaction will not be included in the credit transfer journal but will be entered in the list of transactions like other new accounts opened by cash.
Do I have to contribute every year to my PPF account?
Yes. Your account will be defunct if you do not deposit the required minimum of Rs. 500 a year. The amounts already deposited will continue to earn interest, which will be paid to you at the end of the term (15 years), but you can't take loans or make withdrawals.
What happens to a PPF account in event of the depositor's death? If a PPF account holder dies and there is no nomination, who gets the deposited amount?
If the amount is up to Rs. 1 lakh, the accounts office will pay it to the legal heirs of the deceased on receipt of application in prescribed form, supported with necessary documents without production of succession certificate. If the balance is more than Rs. 1 lakh, it is necessary to produce a succession certificate.
For how many years can a PPF account be extended beyond its initial 15 years of operation?
After the PPF account has been in operation for 15 years, it can be extended for five years at a time. There is no limit on the number of such extensions.
Can a PPF account be transferred from one branch of a bank to another branch, or one post office to another post office? What is the process?
Yes, a PPF account can be transferred from one branch of a bank to another branch, or from one post office to another. Just fill in the PPF account transfer forms available with the postmaster or the bank.
Can NRIs who wish to avail of tax benefit in India consider opening a Public Provident Fund (PPF) account?
NRIs who wish to avail of rebate on their income in India are also eligible to open a PPF account. Subscriptions, however, will have to be made from their NRO account on a non-repatriable basis.
What is the maximum tenure for a PPF account?
The maximum operating tenure for a PPF account is 15 years.
Can I claim tax benefits on my PPF account?
The interest credited to your account, as well as withdrawals from it, are exempt from income tax. The balance held is fully exempt from wealth tax, without any limit.
