Term of the day: What is Public Provident Fund?1 min read . Updated: 17 Jul 2018, 10:04 AM IST
Public provident fund (PPF) is a tax-free investment product that comes with a tenure of 15 years.
Public provident fund (PPF) is a tax-free investment product that comes with a tenure of 15 years. You need to make periodic investment to PPF every year and the minimum you can invest is ₹ 500 going up to ₹ 1.5 lakh a year. You can choose to invest as lump sum or every month. You can hold a PPF account in your name or even open one in the name of a minor but together the contributions can’t exceed ₹ 1.5 lakh.
PPF’s returns are pegged to the average government securities (G-secs) yield and are declared every quarter. Currently, it offers a rate of 7.6% per annum.
You can maximize your return by investing early in the year as then your money will earn interest for the entire year.
Being a tax-free product, the contributions up to ₹ 1.5 lakh qualify for a tax deduction under Section 80C of the Income Tax Act. A deduction reduces your overall tax liability.
On maturity, the proceeds from PPF are tax-free. Although it comes with a tenure of 15 years, it can be extended in batches of 5 years. Premature closure, however, is not allowed. However, from the seventh year, you can make partial withdrawals.
PPF accounts can be opened in banks or post offices, but you need to be a resident Indian.