What is PPF and why you should use it to build long-term wealth

by Nitin

Public Provident Fund (PPF) is a tax-free investment scheme run by the Government of India. The interest on the PPF account is set for every quarter and paid by the government. It is one of the most popular invest cum saving products to create long-term wealth.

Eligibility Criteria

Any Indian citizen can open a PPF account. You can also open a PPF account on behalf of your minor children. However, NRIs are not allowed to open a PPF. But if already have a PPF account and become NRI after that, then you can continue your PPF account till the time it matures. Also, you are not allowed to open multiple or joint accounts.

Minimum and Maximum Contribution

You can do an annual minimum investment of Rs 500 to a PPF account. The maximum investment is capped at Rs 1.5 lakh annually. The maximum limit is applicable on the investment made by you for both your account and for the minor child. You can invest for maximum 12 times in a year.

PPF Tenure

PPF account matures after 15 years from the end of fiscal year in which you opened the account. However, you can extend the PPF account indefinitely for the 5 years at a time. You can also make partial withdrawals from your PPF account after the end of 7th year in case of any financial emergency.

Interest on PPF

PPF offers fixed income and the interest rate on PPF account is notified every quarter by the central government.

Interest on PPF is calculated on a monthly basis. The lowest balance between the closing of the fifth day and the last day of every month are considered to calculate the interest on principal amount. Hence, the money deposited on the 6th of a month is not considered for interest in that particular month.

In April - June, 2020 quarter, PPF interest rate was 7.1%.

How to open a PPF account

You can open your PPF account at post offices, nationalized banks and large private banks including HDFC and Axis Bank. Banks like HDFC and ICICI also allow their customers to open a PPF account online.

After the successful opening of your PPF account, you will get a 'passbook' to record your transaction details including interest, subscription, withdrawals, and more. Your also track your PPF entries online.

Build Long-Term

PPF is an excellent investment instrument that offers fixed returns reliably. You can park 10% to 15% of your investments in a PPF account to build a long-term fund with sure shot returns. For instance, if you invest Rs 10,000 every month in a PPF account at the rate of 7.1%, then you will get Rs 2,712,139 after 15 years. Here, the principal invested is Rs 1,500,000 and the interest earned is Rs 1,212,139.