For several decades now, the Public Provident Fund (PPF) has remained a popular investment alternative for lakhs of investors. Both the conservative investors as well those with aggressive risk profile have opted to invest through PPF primarily on account of these three reasons – Sovereign guarantee on the principal invested and interest earned, tax free nature of interest income and the tax benefit on the principal invested.
However, before you consider investing in PPF, here are a few facts to know.
There may be four different ways for a PPF account to turn irregular.
Firstly, according to the PPF rules, one is not allowed to open more than one account in one’s own name. The second account, whenever comes to the notice of the post office, will be termed as irregular account and has to be merged with the original account. However, as a parent, one can open another PPF account in the name of the minor child.
Secondly, deposits in excess of Rs 1.5 lakh will make the contributions irregular and will be refunded back without interest. Make sure that even the total contribution in the self and minor child’s name does not cross the maximum limit of Rs 1.5 lakh in one financial year.
Thirdly, during the extension period ( after maturity of 15 years), if you keep depositing fresh contributions without intimating the post office, any such contributions will be treated as irregular contributions and will be refunded without interest.
Lastly, PPF account does not allow any provision for joint holdings and only nomination is allowed. This is true, even if the account is in the name of a minor child.
PPF for several decades had only allowed taking partial withdrawals and taking a loan depending on the balance in the account. In 2016, rules were amended and premature closure of PPF accounts was made possible by allowing premature closure of the PPF account anytime after five years of the opening of the account, in extreme circumstances like life threatening disease treatment of the account holder, spouse or dependent children or parents or for children’s’ higher education. However, such premature closure of PPF accounts shall be subject to deduction of such amount which shall be equivalent to one percent less interest on the interest rates as applicable from time to time.
PPF is a 15-year scheme and as a PPF account holder, one needs to contribute at least Rs 500 every financial year to keep it active, else the account becomes inactive and is treated as a discontinued account. The balance, however, continues to earn interest and is available only at the maturity. All the facilities of partial withdrawals, loans or the full exit ( on account of medical, education needs) of the account get restricted unless the account is revived. To renew or revive the PPF account, one needs to pay a penalty of Rs 50 for each non-contributory year, Rs 500 for as arrears for each non-contributory year and Rs 500 for the year in which the account is being revived.