All about public provident fund

All about public provident fund.

Public provident fund

Friends tax season is around, and recently interim budget was presented in which there were couple of perks offered to people who have there taxable income below five lakhs.

If planned properly, even if your gross income is 6.5 lakhs, you can get away without paying taxes, as under section 80c one can invest in tax saving instruments.

Now if you are someone, who is risk averse and don't want to invest in ELSS funds fearing volatility, then what should be your next option. If you were to ask me, public provident fund would be my answer.

Friends today I'm going to explain you everything about public provident fund. Who can invest?, how to invest?, just everything about public provident fund. This post would be your one stop destination to learn about public provident fund. So let's dive in.

Public provident fund

Public provident fund or ppf as you know it, is a saving cum tax saving investment instrument available in INDIA. It was introduced in 1968 by finance ministry of India .

Public provident fund and employee provident fund should not be confused, they both are different from each other.

People who are employed with private companies or public companies have an epf account opened by their employer.

Whereas public provident fund account can be opened up by people who don't have an epf account. Even those people who have an epf account can open a public provident fund account.

Who are eligible for opening a public provident fund account?

1. He/she should be an Indian resident above 18 years.

2. A foreigner cannot open a public provident fund account.

3. A public provident fund account may be opened in the name of a minor provided that guardian and minors account investment cumulatively doesnt exceed 1.5 lakhs.

Some features of public provident fund.

1. Lock in period.

Friends if you are going with public provident fund, then one big thing to bear in mind is they come with a lock in period of 15 years.

However partial withdrawals are allowed from 7th year. After the lock in period , you can extend the tenure for further 5 years, if you are in no need of money at that time.

By extending your investment period you can take good advantage of power of compounding.

2. How many public provident fund accounts can one have?

Friends a person can open only one public provident fund account in his name. This means one account per person.

3. How about having a joint public provident fund account?

Sorry friends you cant jointly own a public provident fund account.

4. Where to open a public provident fund account?

You can open a public provident fund account from any public or private sector bank. Nowadays you can open a public provident fund account online, sitting in your home too.

Post office also allows you to open a public provident fund account.

However it is recommended to open a public provident fund account in the bank, in which you have a saving account.

5. Minimum and maximum investing amount.

Friends the minimum amount for investing in public provident fund account is 500rs every year and the maximum is 1.5 lakhs per year.

6. Minimum and maximum installment allowed.

Friends you can in minimum 1 installment and maximum 12 installments are allowed.

7. How to make payment for public provident fund.

Friends you can pay in cash, through cheque, demand drafts, online account transfers etc.

8. Interest rate.

Currently you can earn 7.6% on your public provident fund investment, government revises interest rates every quarter, the returns are compounded annually.

9. Nominee.

Yes you can assign a nominee for your public provident fund.

10. Loan facility.

Yes you can avail loan facility after completion of 3 years.

11. Can I close my public provident fund account prematurely.

Yes you can prematurely close your account, but only after completing 5 years, that too only for specific reasons like critical illness.

You would be charged with penalty for doing so.

12. Withdrawals.

Friends you can partially withdraw funds from your public provident fund, after completion of 6 years.

13. What happens if I get transferred to a different state.

Friends no worries, you can transfer your public provident fund account to the desired bank at any point of time. There is no charge, if you wish to transfer account.

14. Taxation.

Friends investing in public provident fund helps you to save taxes under section 80c.

The total amount you have invested over the tenure also the interest earned on this sum is totally tax free.

15. Risk element.

Friends since public provident fund is backed by government, there is no risk factor involved.


So friends if you are someone who is not comfortable with ELSS funds then public provident fund is the best option for you, if you want to save taxes. However one point to note here is public provident fund can never give you superior returns like ELSS funds.
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