If you want to invest your money for the long haul in India, the Public Provident Fund (PPF) is a great choice. In this detailed guide, we’ll walk you through the steps to invest in PPF, making it easy for you to understand and make this investment. Let’s dive into how you can grow your money wisely with PPF.
The Context
As a saving scheme by the government, PPF gives an agreeable rate of interest and returns on investments. As of 2022, the PPF continues to earn an interest of 7.10 percent.
The National Savings Institute of the Ministry of Finance created the Public Provident Fund as a small savings and tax-saving tool in India in 1968.
Due to its many advantages and aspects, investing in a Public Provident Fund, or PPF, is highly popular among risk-averse investors. Although it is not seen as a stand-alone investment tool, PPF is frequently beheld as an alternate retort for smart DIY investors to deal with diversification.
This is because capital safety and steady returns serve as a hedge for the rest of the portfolio, which may be exposed to higher risk in expectation of higher returns via other volatile instruments like equities. Investments placed in a Public Provident Fund are eligible for a deduction under Section 80C of the Income Tax Act.
How to Invest in PPF?
The first step in investing in this product is to open a PPF account at a post office or bank. A PPF account may also be opened on behalf of a minor. PPF investments are simple and provide both online and offline choices for investing. But before diving into the procedures for the various routes, it is crucial to be aware of the paperwork required to open an account.
Document Requirements
≡ PPF Form: A PPF form is the initial paperwork needed to start a PPF account. It is easily accessible at bank locations or on the India Post website.
≡ ID Proof: You would then require identification proof. This could be your driver’s license, passport, Aadhaar card, voter ID card, or PAN card.
≡ Address Proof: Your ration card, Aadhaar card, phone bill, or utility bill may be an example of this.
≡ Photos: Two recent passport-sized photos.
≡ Signed Check: A signed check made out in your favor or a pay-in slip authorizing the transfer of funds to your PPF account.
≡ Birth Certificate: Birth certificate as evidence of age, only in case of a minor account. You must remember that each document requires self-attestation.
Additionally, while opening an account offline, you must have all of the original documentation.
The Online Option
You need to have a savings account with a bank or post office to open a PPF account online. Your account should also be accessible through online or mobile banking. While the online application process varies amongst banks, the general idea is pretty much the same. The following are the steps to open a PPF account:
💬 Step 1: Log in to your account using the online or mobile banking services offered by your bank.
💬 Step 2: Choose the “Open a PPF account” option.
💬 Step 3: If you wish to create an account just for yourself, use the “Self Account” option.
On the other side, you should choose “Minor Account” if you want to set up an account for a minor.
💬 Step 4: Enter and double-check all the pertinent information in the application form.
💬 Step 5: In this stage, you must provide the entire sum that you intend to put into the account each fiscal year.
💬 Step 6: You can now specify standing instructions. Therefore, the money will be automatically deducted from your savings account and credited to your PPF account at the intervals you choose.
💬 Step 7: This is the time to submit your application. You will get an OTP for transaction authorization on the registered mobile number.
💬 Step 8: Confirm your identity by providing this OTP.
Your Public Provident Fund account will be created when you complete the steps above.
Your screen will display a notification informing you of the same.
You will also get a confirmation email at the address you registered.
The Offline Option
Here you need to complete the offline application in writing to open a PPF account. Send or submit this completed form, along with any necessary supporting documentation, to the post office or bank where you want to start a PPF account.
Furthermore, opening a PPF account would be easier if you already have a savings account with a post office or a selected bank branch. You will be given a PPF account passbook once the documentation process is finished and an initial deposit has been made.
This passbook will have all the information, including your PPF account number, branch name, account holder’s name, etc.
Eligibility
Any individual who is a resident of India can open a PPF account. NRIs can manage their account if they started their PPF account while they were citizens of India. They can do so for 15 years without the possibility of an extension.
Investment Limitations
Every investor should be aware of the limitations of PPF investments. The minimum investment required to maintain an active PPF account is Rs 500. The maximum investment under PPF, however, is 1.5 lakhs.
However, it should be noted that if a person does not deposit the required minimum of Rs 500 after a financial year, a penalty of Rs 50 will be assessed for each year of default. Additionally, a maximum of 12 PPF transactions may be made by investors in a single year.
The Element Of Time
Timing is important here too, just like when you buy equities. It is believed that the beginning of the year is the ideal time to invest in PPFs. This is because someone who chooses to invest in PPF in this way will earn interest on their contributions for a whole year. Additionally, it is important to remember that the interest paid on the Public Provident Fund is determined using the minimum monthly amount between the last and fifth day of the month.
Therefore, it would be better to make your PPF investments before the fifth of each month if you intend to do so every month.
The Withdrawal Clause
After the PPF account has matured, or after 15 years, you may choose to withdraw the entire balance and may also decide to cancel your account at this time. Alternatively, you can submit Form 4 within a year of the maturity date to prolong the term of a PPF investment for a block period of 5 years.
Another flexible option is that five years after the account opening date, you can make a partial withdrawal of the funds. However, after the fourth year after the date of opening, you are only permitted to withdraw up to 50% of the entire account amount.
The ability to withdraw money is also limited to just one each fiscal year.
Conclusion
PPF’s primary goal is to encourage small savings, hence the maximum investment amount is capped at Rs 1.5 lakh. Many experts advise investing in PPF due to the tax-free nature of the PPF maturity amount and the total income received over the investment period.
PPF has many benefits, but it also has some disadvantages that should not be neglected. For instance, PPF is a long-term investment; because it has a 15-year maturity period, you won’t be able to access all the funds until that time.
PPF should therefore not be thought of in isolation, but rather in conjunction with other elements that go into creating an efficient investment portfolio. Because it combines yields, tax benefits, and safety, there is no denying that it is a preferred option for many investors when it comes to both saving and investing. We hope you now have all the information you need on this topic.
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1 Comment
PPF is not a good option in my opinion because it locks money away for an extended period of time. Debt funds are preferable to PPF.