Five reasons why you should open a PPF account

6 MinsApril 05, 2022

The Public Provident Fund (PPF), a government-backed long-term small saving scheme, is one of the most popular and safest investment avenues in India. This is no surprise given the benefits offered by PPF. 

five reasons to open ppf account


Long-term goals such as your child’s higher education or wedding expenses and saving for your retirement corpus can be easily met by opening a PPF Account, even as you enjoy tax exemption on your contributions. Hence, it is advisable to contribute regularly to a PPF account, regardless of whether you are a salaried employee, a business owner, or a professional. You can also open a PPF Account in the name of a minor. 

Ideally, open your PPF account and start contributing from the beginning of the financial year, i.e. April, to earn maximum returns.

Here are five reasons to open a PPF Account:

1) Earns a fixed rate of interest
  Currently, PPF offers a fixed rate of interest @ 7.1% p.a. (compounded annually). If contributions are made regularly (annually, bi-annually, quarterly, or in 12 monthly instalments) for the entire tenure of 15 years, you can build a sizeable corpus by the end of the maturity period. 

If you are planning to invest monthly, make sure your PPF account is credited with the investment amount on or before the 5th of every month to get the maximum benefit. This is because the interest earned on the PPF Account is calculated on the minimum balance in your account between the 5th and the last day of every month. 

If you do not make the minimum contribution of Rs 500 to your PPF Account in a year, it will be deactivated. The account can be reactivated by paying a fine of Rs 50, plus the arrears of a minimum deposit of Rs 500 for each year of default. 

2) Favourable tax status
The contributions made to the PPF Account are eligible for deduction (from Gross Total Income) of up to Rs 1.50 lakh under Section 80C of the Income Tax Act, 1961. Further, the interest earned and the maturity proceeds are exempt from tax. Even partial withdrawals from PPF are exempt from tax. Thus, PPF provides a favourable Exempt-Exempt-Exempt (E-E-E) tax status and is a useful tool to combine your tax planning with investment planning. 

3) PPF Account cannot be attached in case of debt
The PPF account cannot be attached by the order or decree of the court in case of any debt or liabilities, as per the PPF rulebook. 

So, even if the PPF account holder goes bankrupt, a creditor cannot claim this money to repay a debt. In other words, the money in the PPF Account remains safe and yours for life. Besides, in the unfortunate event of the account holder's demise, the nomination facility makes it possible to pass it on to the legal heir/s. 

[Also Read5 Lesser-Known Rules for PPF Accounts]

4) Partial withdrawal and loan facility available 
During the 15-year tenure of the PPF Account, if you need the money for a specific purpose; partial withdrawals are possible. You can withdraw from your PPF account once it completes 5 full financial years, from the end of the year in which your initial subscription was made. For example, if you opened your PPF Account in February 2017, you could make your first withdrawal in FY 2022-23.

Another condition is that you should have made regular minimum contributions to your PPF Account every financial year from the initial year of opening the account. 

You can also avail of a loan against the PPF Account. The loan can be availed after the expiry of one year from the end of the year in which the initial subscription was made but before the expiry of five years from the end of the year in which the initial subscription was made. For instance, if you opened your PPF Account in February 2017, you can avail of a loan from FY 2018-19 but before March 31, 2022. 

Keep in mind only one loan can be availed of during the financial year, and the second loan cannot be availed until the first one is repaid in full. You can avail of a maximum loan of up to 25% of the balance to the credit at the end of the second year immediately preceding the year in which the loan is applied. 

5) Efficient tool to plan for long-term financial goals
PPF is a worthy avenue to address long-term financial goals, such as your child’s future needs (higher education expenses, and wedding expenses) alongside your retirement. It will help you compound money earning fixed, secured, and tax-free returns. At the end of the maturity tenure of 15 years, you could build a significant corpus with the power of compounding working to your advantage.  Use Axis Bank’s PPF calculator to know how much the amount will be at maturity –– the investment + interest.

PPF is a must-have investment avenue in your investment portfolio. If you do not have a PPF Account, make sure to open your PPF Account today! You can open a PPF Account online on Axis Bank’s website or even an NPS Account by visit the nearest branch.

Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm. Axis Bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.