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Public Provident Fund (PPF) is one of the most popular saving scheme with limited risk-free investment tool. PPF interest rate today stands at 7.10 per cent per annum. While PPF is completely a debt instrument and most of the investors are not aware of its features. A PPF account provides a good combination of safety, returns and tax-saving benefits. Industry experts list out seven features of this popular small savings scheme.

1) PPF tenure

A PPF account matures in 15 years, and you can extend it in blocks of 5 years each. Gaurav Kapoor, Director & Co-Founder, Fincorpit Consulting Private Limited said PPF also has a maturity period of 15 years, and you can extend this tenure in blocks as well.

2) Cheap loans

PPF account is not just an investment option but can help the accountholders take a personal loan during financial emergency. As per the PPF loan rules, an account holder can get loan against PPF account from 3rd to 6th year of PPF account opening and the PPF loan interest rate is just 1 per cent.

Gaurav Kapoor said another feature PPF offers is loan on PPF at cheap interest rate, you can take a personal loan against the balance in the account. This can be very handy, especially when the loan is taken for a shorter tenure and the interest rate will also be very competitive. 

3) Partial withdrawals allowed

A person is allowed to withdraw from his PPF account only when the PPF account is at least six years old. Amit Gupta, MD, SAG Infotech said even if the account is six years old, only 50 percent of the total fund can be withdrawn. The balance amount stays in the PPF account. Partial withdrawal can be done from the sixth financial year post opening the PPF account.

4) Assured interest rate, but not fixed

Since PPF returns are fairly higher than other fixed investment schemes, you can readily receive inflation-beating returns over the long term. Also, the interest rate gets adjusted every quarter by the government, and in the current quarter, the return on PPF is 7.1%.

“If we assume that the current PPF interest rate of 7.1 percent remains constant over time, one can easily build up a sizable retirement fund of over 1 crore by the time he retires. The PPF interest rate remains the same at 7.1% over time then a person can make a large retirement fund of around 1 crore at the time of his retirement," said Amit Gupta

5) Invest in PPF before the 5th of every month

You must deposit the PPF instalments before the fifth of every month to earn more income. Currently, the next best timeframe for depositing in PPF would be between April 1-5.

The interest on the PPF deposit is calculated every month. However, the interest is credited into the PPF account at the end of the Financial Year.

“The balance in the PPF account between the 1st to the 5th of the month is considered for interest calculation purposes. Deposits made in the PPF account before the 5th of the month earn interest for the entire month. Suppose the balance in your PPF account was 2 Lakh on April 05, 2021," explained Archit Gupta, Founder and CEO - Clear

If you deposit an additional 1.5 Lakh in your PPF Account on April 06, 2021, interest accrues on the minimum balance in the account between April 5 and April 30, 2021, which would be 2 Lakh. Investors lose out on the interest on the additional deposit of 1.5 Lakh for April 2021, he added.

6) Tax Benefits

The Public Provident Fund scheme is quite popular amongst taxpayers. One of the important reasons for its popularity is the fact that PPF falls under the category of exempt–exempt–exempt tax status.

“PPF qualifies for the EEE tax regime. PPF deposits are tax-deductible up to 1.5 Lakh per financial year under Section 80C of the IT Act. Moreover, the interest generated from the investment and the PPF maturity amount is tax-free," said Archit Gupta.

7) Premature closure of PPF

A PPF account matures after 15 years from the year of account opening. You can make premature partial withdrawals or close the account prematurely – any time after five years from the end of the financial year in which the account was opened.

“Investors can prematurely close PPF accounts in specific situations such as treatment of life-threatening diseases of the account holder/spouse/dependent children/parents after the completion of five financial years of opening the PPF account. Moreover, PPF accounts can be closed prematurely for the higher education of the account holder/dependent children and change of residence to a foreign country," explained Gupta.

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