PPF (Public Provident Fund): Investing Small Amounts Can Create A Corpus Fund

NDTV Profit Desk

10 Aug 2022, 08:01 AM IST

One can contribute a minimum of Rs 500 and a maximum of Rs 1.5 lakh in a year

Public Provident Fund (PPF) is a long-term investment tool suitable for those who want to create a corpus fund with regular deposits of small amounts.

With guaranteed returns, the PPF scheme could be ideal for investors with a very low-risk appetite.

All the residents of India are eligible to invest in the PPF scheme. Individuals can open a PPF account by visiting the online portals of banks.

You can even open a PPF account at designated post offices. PPF is considered a safe investment option as it is regulated by the government and gives a steady return.

Form-A to open PPF account

Individuals need to fill up Form A, which is known as the account opening form and submit their KYC (Know Your Customer) documents to open their PPF account.

Continue after maturity

You can extend your PPF investment even after its maturity. The maturity period for a PPF account is 15 years, and it can be extended for a block of 5 years after maturity.

The account can be extended one or more times in 5-year blocks. To extend the PPF account, individuals must fill out Form- H.

Contributions

One needs to contribute a minimum of Rs 500 and a maximum of Rs 1.5 lakh in a financial year. Contributions can only happen once a month.

For instance, if a person invests Rs 50,000 yearly in PPF, s/he can build a corpus of Rs 13.56 lakh in 15 years. (Calculated at the current interest rate of 7.1 per cent).

Putting in the maximum amount of Rs 1.5 lakh yearly in PPF can build a corpus of Rs 40.68 lakh in 15 years. Opting for extensions can further increase the maturity amount.

PPF loan

Investors can also take a loan against the corpus of their PPF account. This facility is only available between the third and sixth year of starting the PPF account.

The loan amount is capped at 25 per cent of the PPF corpus. The interest charged on the loan is 1 per cent more than the interest offered on the PPF investment. The interest also needs to be paid off in two monthly instalments.

Tax benefits

The contribution to the PPF account can be used as a tax exemption under Section 80C. The interest accrued on the corpus is also exempt from tax.