What are Public Provident Funds (PPF)?

Everyone wishes for a peaceful retirement. You have worked hard throughout your life. All you want to do now is probably travel to places, watch your grandchildren play, get together with old buddies or simply spend time gardening for which you couldn’t spare time during your employment years. But to do all of this, it’s important that you are financially secure and independent. To achieve your goal, you have to start early.

“Never too late to start. Anything can happen anytime.”

–Avery Neumark

The words of Avery Neumark (CPA and Partner in Tax Group at Marks Paneth LLP), are very true. The future is a treasure box of unseen mysteries. Old age can also be unpleasant due to uncertain events like health issues or unexpected emergencies. If you want to be prepared for that, it’s vital that you back your retirement age with an assured income to meet all your needs, both planned and unplanned. There are various schemes that help you create a good corpus to keep you prepared for your golden days to come. One such scheme is our topic for discussion today–“Public Provident Fund”

Let us understand more about Public Provident Fund (PPF).

What does PPF mean?

On July 1, 1968, the Central Government of India introduced a voluntary investment scheme called Public Provident Fund that would assure income security for resident Indians (both salaried and self-employed) during their retirement. The PPF rate for July-September 2021 (Q1 FY21) is 7.1%. However, the Indian Government revises these rates every quarter.

Why should you invest in PPF?

Here are the top reasons why you can consider investing in PPF:

• PPF provides assured returns during your old age, thereby ensuring financial security.
• PPF is highly reliable and risk-free since it is a Government scheme that ensures capital protection.
• Helps you deal with inflation, provided the inflation rate is below the interest rate provided by PPF. Additionally, the Government reviews the PPF rates quarterly.
• PPF provides tax deduction of an investment amount up to Rs. 1.5 lakhs under Section 80C of the Income tax act.
• Any withdrawals, maturity amount, interest earned, and deposits are completely tax-free.

Do PPF investments offer liquidity?

Though PPF has stringent lock-in period and withdrawal protocols, it still provides liquidity:

• The entire amount can be withdrawn only after the PPF tenure (15-year lock-in period). However, loans are offered against the PPF from the third to the sixth year.
• Premature closure of PPF takes place in the event of the account holder’s death only. However, to support the needs of medical emergencies or cater to children’s higher education, PPF also allows early closure of accounts after 5 financial years of account opening.
• To provide cover in cases of financial crises, partial withdrawals are permitted. Such withdrawals are allowed once a year, from the 6th financial year onwards and are subject to conditions such as:
  • withdrawals must not exceed 50% of the balance at the end of the fourth year, or
  • 50% of the balance at the end of the immediately preceding year, whichever is lower.

The major objective of a PPF account is to create long-term savings because the minimum investment tenure is 15 years. In this case, investing in Mutual Funds makes more sense because you can have chances of earning higher returns as compared to 7.1% from PPF. Some of the funds that have historically given more than 15% returns for a 5-year investment are:

• Nippon Focused Equity Fund–Returns > 15.62%
• IIFL Focused Equity Fund–Returns > 19.23%
• Axis Focused 25 Fund Direct Plan Growth–Returns > 18.76%

At the same time, liquidity is also a crucial factor for investment. After all, it is your money and you must be able to access it when there is a need or an emergency. If you have objectives that need a smaller time period, then you can invest your savings in Short Duration Mutual Funds.

Here are some short-term funds (between 1- 3 years) that provide average returns of more the 8% combined with easy liquidity:

• Kotak Bond Short Term Fund – Returns > 8.37% (2-year average)
• IDFC Bond Fund – Returns > 8.78% (3-year average)
• Axis Short Term Fund Direct Growth – Returns > 8.47% (2-year average)

What are the eligibility criteria for a PPF?

You are eligible to open a PPF account if you are a resident of India. There is no age barrier for enrolling yourself in PPF. This is generally seen as a good option for investors who have a low-risk appetite and are looking for definite returns.

A minor can also hold a PPF account through a parent or guardian.

What is the process to open a PPF account?

You can open a PPF account from:

• State Bank of India (SBI) and branches of its associated banks.
• Nationalized banks such as Bank of India, Bank of Maharashtra and Bank of Baroda.
• Head or general post office.
• ICICI Bank, Axis Bank and various such as private sector banks

All you need is:

• Aadhaar card or acknowledgment of your Aadhaar application, in case of its absence.
• Identity proof: Aadhaar card, passport, PAN, driving license, voter’s ID, ration card or Form 60 or 61 as per Income Tax Act 1961.
• Account opening form.
• Two passport size photos.

Or, if your end goal is just to save up for retirement and you don’t like this tedious offline process and cumbersome paperwork, then you can sign up on Fisdom and complete the paperless KYC in 5 minutes to build your retirement corpus by investing in Retirement Funds or even Solution Oriented mutual funds.

Pointers:

• You can start your PPF account with just Rs. 500/-.
• The minimum deposit is of Rs. 500 and the maximum is Rs. 1,50,000 in a financial year.
• You have the flexibility to make deposits in one go, or through installments made monthly, quarterly, half-yearly or yearly.
• Remember to carry your original identity proof at the time of opening the account for verification purposes.
• Don’t forget to choose a nominee.

It’s necessary to have a fund for your retirement as it is essential to take care of your expenses when you retire and continue to cover the needs of your family or dependents. At the same time, what happens to your family in case of your untimely death? That is also an unseen possibility in the future. Right? To secure your family in such an event, it’s necessary you also consider Term Insurance as an investment option in which the beneficiaries of your term insurance policy will get the guaranteed amount that would help them continue the lifestyle you had provided them financially.

With Fisdom , you will be able to provide a cover of 1 crore to your family by just paying more or less the same amount you require to get your Netflix subscription. All you need is a few minutes to input your personal details, annual income and choose the life cover your family requires.

Are there any alternatives to PPF?

Though the Public Provident Fund is one of the most trusted instruments to build your retirement corpus, it also has its drawbacks. And to overcome these drawbacks, you choose Mutual Funds or NPS as an ideal investment option. Let’s see why:

• The amount that can be invested in a PPF account is limited to Rs. 1.5 lakh per year. But with Mutual Funds and NPS, there is no limit on the amount you can invest.
• PPF offers less liquidity. You cannot withdraw your funds until the completion of 6 years. But with Mutual Funds, you can retrieve your money at any time from most of the investment plans.

Want to read more on Retirement? Check: Retirement Planning.

Conclusion

Mutual Funds are best known to provide plans that suit your investment horizon, risk appetite and financial need. To gain access to these tailor-made funds, you can invest in Fisdom , India’s most trusted app for Direct Plan Mutual Funds. Fisdom specifically provides funds for your retirement goal. All you need to do is choose the year you would retire in, determine your retirement lifestyle and begin investing small amounts every month through SIPs (Systematic Investment Plans). Sign up on Fisdom now: Invest Now.

So begin your investment with Fisdom app. Start today and reap the benefits in the days to come!

FAQs

1. Is it mandatory to deposit an amount in a PPF account?

Yes, you must make a minimum deposit of Rs. 500 every year in PPF account to keep it active. Failure to do so could result in the account being discontinued, followed by penalty charges to reactivate the account.

2. How much will I get in PPF after 15 years?

To check PPF amount that can be earned after 15 years, you can use an online PPF returns calculator. Depending on the amount of investment and prevailing interest rates, the calculator fetches the exact earnings for investors.

3. How do I maximise gains from PPF?

Since banks consider deposits made from 1-5th of every month for interest calculations, you should try to deposit by the 5th of every month to earn maximum returns.

4. How to check PPF balance?

You can check your PPF balance at the nearest bank or through the bank’s website. The same can also be checked by visiting a post office. 

5. How to open a PPF account?

PPF accounts can be opened by using net banking services of associated banks. The same can also be done physically by visiting the nearest bank branch.

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