Public Provident Fund (PPF Account)
What is PPF? PPF stands for Public Provident Fund. When we say fund, we are indicating something related to finance. So yes, PPF is all about finance and investment. Unlike private investment avenues, PPF is a government-run investment area, providing safety and high returns. PPF is one of the oldest investment avenues in India. In the coming year, that is, in year 2017, PPF will become 50 years old!
50 years is a long time! The very fact that it has survived the test of time is a testament that PPF is one of the securest investment arenas. Launched in 1968 by Indian government, this financial vehicle has helped millions of people to achieve their financial goals even with humble investments, which are mostly considered as useless by many private financial products. PPF is not going out of business anytime soon. In facts, it is so deeply integrated in India’s financial market that one can safely assume its demise as a complete meltdown of Indian financial framework as a whole.
Have you ever wondered why PPF was introduced in market?
What was the purpose of PPF in first place? To answer this question, we need to take a peek into our past. India in the pre-independence era and before the start of colonial rule, was world’s second richest country only closely following China, in terms of global trade. There was no poverty as such. Then came the British and exploited and looted and pillaged this nation to its very core and by the time they left, we moved from riches to rags! When the British came, India was literally poor. People had very little money and didn’t have any idea of how to spend or save. The Indian economy was in complete chaos. To fix this problem and to make India stand on her feet, the idea of PPF was conceived and this financial product was introduced with the following benefits:
- Investments that are made in a PPF account will not be counted towards calculation of income tax.
- Interests that are earned by PPF investments will not be counted towards calculation of income tax. This means, interest earnings of PPF account do not count towards the total income of people.
- Yearly investments in PPF account eventually lead to a lump sum amount, which also grows because of interest it earns over time. This lump sum amount can be used as retirement corpus when streams of monthly income stop completely.
A few details of PPF that one should know
The interest rate on PPF investments is floating. This means that the interest rate keeps changing. Luckily, it is not floating in its truest sense. Floating rates actually refer to interest rates that change every day. In case of PPF however, the float is restricted on a yearly basis. Interest rate will not change for one entire fiscal year. However, when the next fiscal year begins, this interest will change. So, to be more accurate, PPF interests are partially floating and partially fixed. At the beginning of each fiscal year, the interest rate for PPF is declared by government. Discussing exactly how this interest is calculated is far beyond the scope of this article and we don’t need that as well. That’s because we cannot exercise any influence on the decided interest rate. Only government has the right to do so. So, we have to satisfy ourselves with what has been provided.
Luckily however, the government is generous enough to keep the interest rates at an acceptable level. For instance, interest for FY 2015-2016 was higher that interest for 2016-2017. The interest for previous fiscal year was at 8.7%. For this fiscal year however, the rate has been reduced to 8.1% and we have to accept that.
But, is this interest a yearly interest or monthly? Basically it is yearly interest but for the purpose of calculation, it is broken down into monthly interest. So, the sum total of all monthly interest is equal to the final yearly interest. For example, let us assume that the yearly interest is 12%. In that case, the monthly interest will be 1%.
How do you open a PPF account?
The only way to open a PPF account is to approach a post office or a bank. Any post office in India has the authorization to open PPF account. However, that’s not the case with banks. In case of banks, you have a choice. You can either opt for a nationalized bank or you can go for a bank from a private sector.
While most of the public sector banks have authorization to open PPF account, not all private banks can do that. Below is a list of banks that are allowed to open PPF account. However, you need to remember another thing. All branches of authorized banks cannot open PPF account. Only the selected branches of a bank can do so.
|Public Sector Banks||Private Sector Banks|
|Vijaya Bank||ICICI Bank|
|United Bank of India||Axis Bank|
|Union Bank of India|
|State Bank of Travancore|
|State Bank of Patiala|
|State Bank of Mysore|
|State Bank of India (SBI)|
|State Bank of Hyderabad|
|State Bank of Bikaner and Jaipur|
|Punjab National Bank|
|Punjab and Sind Bank|
|Oriental Bank of Commerce|
|Indian Overseas Bank|
|Central Bank of India|
|Bank of Maharashtra|
|Bank of India|
|Bank of Baroda|
Now that you know which banks are authorized, all you have to approach the bank of your choice and ask about the PPF account opening facilities.
Whether you are approaching a bank or a post office, you will have to fill up an application form. This form is known as Form A or account opening form. There are various types of forms related to PPF account. For new account opening, it is Form A. Once you fill up the form, you need to submit it along with necessary documents (which will be mentioned in the form and even the bank or post office officials can separately tell you about the documents that will be needed).
Once you submit the form, you will have to deposit the minimum amount of deposit as mandated by PPF rules and the account shall be opened. Once the account is opened, you can operate the account the way you want.
What are PPF account rules and conditions?
There are several rules and conditions of PPF account. Usually known as eligibility criteria, one needs to follow these conditions ritually. Failure to comply will mean that either the PPF account will not be opened or the person may later be prosecuted for falsification of data. So, let us take a closer look at the rules and conditions of PPF account, shall we?
Rule 1: No multiple accounts! It simply means that one person is entitled to own only and only one PPF account. A person cannot have multiple accounts.
Rule 2: Indian please! It means that in order to open a PPF account, a person needs to be a citizen of India.
Rule 3: Adult please! This means that the person opening a PPF account will have to be an adult, that is, he or she has to be 18 years old. A quick twist here. An adult can open a PPF account on name of a minor and operate the same. The only binding factor here is that the total money in the account of the minor and the account of the adult (who opened a different account for a minor and operates the same) cannot exceed the yearly cap of INR 1.5 lakhs. We will get to this later.
Rule 4: Foreigners stay away! No foreign nationals are allowed to open a PPF account. There is absolutely no possibility of that happening.
Rule 5: NRIs stay away too! Okay, one person may be an Indian but living abroad and is yet to receive foreign nationality. Such a person is not allowed to open PPF account either. Again, a quick twist here. A person lives in India and is an Indian citizen and opens a PPF account. He or she then moves out of India and become NRI. That person however can continue to maintain and operate the PPF account.
Rule 6: HUFs are out of luck! HUFs or Hindu Undivided Families were allowed to open PPF account before 2005. That has stopped now. HUFs are no longer allowed to open PPF account. However, those accounts which were opened prior to May 13, 2005 will continue as normal but a part of a benefit will cease to exist. What is that? Well, tenure of PPF accounts can be extended for 5 years after maturity. This extension can be taken multiple times but each time, the extension will be for a slab of 5 years. This feature will not be available HUF PPF accounts that will continue to operate.
Rule 7: Grandparents and grandchildren rule! Well, since one can allowed to open a PPF for a minor, one can think that grandparents may open PPF accounts for their grandchildren. But that’s not allowed. Grandparents cannot open PPF accounts for grandchildren who are minors. However, if the grandchildren are adults, grandparents can open PPF accounts for them.
Rule 8: Individual and HUF relation rule! Now, HUFs are not allowed to open PPF accounts but one may think that since an individual can open a PPF account, he or she can open one on behalf of an HUF. Well, nice thought but sorry! NOT ALLOWED.
What are the documents needed for opening PPF account?
There are a few documents that you will have to furnish while opening a PPF account. Here we are going to list a few general ones but remember that the list here is only general. Banks and post offices may ask for additional documents if they feel necessary. The list here will only provide you with an idea of what to expect. So, let us begin.
- Address and Identity Proof: This is mandatory. You can always use any one of the following or a combination of few for the purpose:
- Voter ID card
- PAN card
- Ration card
- Aadhar card
- Utility bill
- Letter from employer
- Bank account statements
- Rental agreement or lease agreement
- Driving license etc.
- Signature verification: For this purpose, you will need to provide a check you have signed.
- Photographs: You will have to provide passport-sized photographs. The photographs must be colored and recently clicked.
- Form A: This is essential. You need to provide a properly filled form.
- In case the account is for a minor: If the account is for a minor, the following additional documents will be required:
- Birth certificate of the minor in question.
- In case birth certificate is not there, a school certificate with the date of birth of the minor clearly imprinted on it will be required.
- Nominee: If a person wants to elect a nominee or multiple nominees, a proper nomination form has to be filled up and submitted along with the actual application. This form is known as Form E. This form will have the name and details of the nominee or nominees.
How to open a PPF account Online and Offline
Okay, opening a PPF account is very simple. However, we need to ask, are you more of an internet person or one who likes to be physically present at a place to get the work done? Whatever you are, there is good news! There are both online and offline methods of opening PPF account. However, the online method is not completely online because it will involve some offline work! Let’s find out.
The offline method, if you choose to!
No fuss. Just go to a bank or to a post office, get Form A, fill it up, give the required documents, submit and pay the opening balance for the account.
Wait until all verifications are completed by the bank or post office. Once they are satisfied, they will open the account and give you the account details and PPF passbook.
This will take at least two or maximum 4 trips to the bank or post office. In your first trip, you will collect the form and learn about the documents needed. In the second trip you will have to submit the form with documents and initial deposit.
The account may be opened the same day or it may take a few days and then you will be called upon to collect the passbook. If the account is opened the same day, you will get the passbook that very day or you may have to pay a third visit to get the passbook. Why 4th visit? Well, if some documents are not in place or if there are some verification issues, you will have to visit one additional time to fix those issues.
The online method, if you choose to!
The perks of online method include:
- Time saving.
- Cutting down traveling expenses.
The problem – you cannot go for a post office. Online method is available only and only for banks.
Here is what you need to do:
- Visit your bank’s online portal.
- Go to PPF link and click on open new account and follow the instructions you see online.
- Depending upon which bank you are using, you may have the ability to upload scanned documents. If not, you will have to download the PPF form, take a print, fill it up, attach documents and visit the bank to submit them along with the initial account opening deposit (for example, State Bank of India).
Later you can link your PPF account with your bank’s savings account and make transfers directly.
We are sorry to say that we really cannot provide all steps involved in the online process because every bank has its own method which varies from every other bank.
Features of PPF account?
We covered almost everything but the features. It is time to take a closer look at all features of PPF. For this, we are going to use a table. It will be easier to understand.
|Features of PPF Account||Details about the features|
|Where to open?||In any nationalized bank in India and the authorized branches of those banks. Also a couple of private banks are allowed. For them as well, you need to approach the authorized branches only. Also, you will have the option of opening a PPF account with a Post Office.|
|PPF account total tenure||A PPF account has to be maintained for 15 years.|
|Interest rate provided for PPF investments||Currently the interest rate is 8.1%. This interest rate can change in next year. The interest rate is declared every year by government. Here year means financial or fiscal year.|
|Minimum deposit amount allowed in PPF at once||That will be only INR 100.|
|Minimum total yearly deposit allowed in PPF||That will be only INR 500.|
|Maximum deposit amount allowed in PPF at once||That will be only INR 1.5 lakhs.|
|Maximum total year deposit amount allowed in PPF||That will be only INR 1.5 lakhs.|
|How many times can you invest in PPF account in a year?||No more that 12 times in any given fiscal year.|
|What happens if you fail to deposit the minimum amount in a year?||You need to deposit INR 500 in one year. If you fail, the account will be marked as inactive. However, you will have the provision of reactivating the account once again by paying the penalties and the backlog along with minimum yearly investment for the current year.|
|What are the methods you can use to deposit money?||There are actually several methods allowed which include post office deposit, demand drafts, direct cash deposit, cheque and even online transfer through NEFT.|
|What are the withdrawal facilities in PPF account.||Until the account reaches 7 years of age, there is absolutely no way of withdrawing any money from the account. However, partial withdrawals are allowed after that. These partial withdrawals can be made every year. Complete withdrawal is not allowed under any circumstances unless the PPF account runs its full tenure.|
|Are there any tax benefits for PPF investments?||Yes there are several benefits. All investments made in PPF account are non taxable. However, there is cap to yearly maximum investment. Tax benefits can be availed up to 1.5 lakh rupees of investment a year. Again, whatever interest is earned by the invested amount is also tax free.|
|Is there a possibility of holding a joint PPF account?||Absolutely no. Joint PPF accounts are not allowed.|
|What are the nomination options? Is it possible to change or modify nomination later?||Yes there are nomination options. Nominees can be chosen at the time of opening an account or after that. Multiple nominees are allowed. Nomination can be changed anytime during the tenure of the account. Nomination can be modified as well.|
|Is there something called PPF account renewal?||Not exactly. However, there is something called extension. Once the tenure of the PPF account is over, one may want to keep the account active. That is allowed in slabs of 5 years. That means after 15 years is completed, the account can be extended for 5 years but neither less than 5 years and nor more than 5 years. This extension can be availed as many times as one wants.|
|Is it possible to transfer funds from one PPF account to another?||This is strictly forbidden. Transferring funds from one PPF account to another PPF account is absolutely not possible. However, a person is always free to transfer funds from one bank to a post office or to another bank for the same PPF account.|
|Is it possible to take out loan against PPF account?||Yes, one can always avail loan against PPF balance. However, there are strict rules. Loan cannot be taken out before the completion of 3 year and loan cannot be taken out after the completion of 6th year. Beyond 6th year it is not allowed because from 7th year partial withdrawals are allowed. Loan should be completely repaid within this period. A second loan cannot be taken out unless and until the first loan has not been paid in full.|
Okay, that’s pretty much everything about PPF. In case you have any questions or concerns, feel free to drop us a message and we will revert back to you as soon as possible.