Benefits of PPF Account | Public Provident Fund : PPF is about to mature? Know what your next step should be, your PPF is nearing maturity? Know what the next step should be
PPF Account Rules (Photo-istock)
- Investment in PPF earns 7.1% interest.
- The maturity period of PPF account is 15 years.
- Interest on PPF is compounding.
Public Provident Fund (PPF) is one of the safest, government-guaranteed small savings schemes in India as it offers safety of capital, assured returns and tax saving. PPF is preferred by investors as a retirement fund as it requires them to deposit money regularly for a long period. You can deposit a small amount (from as low as Rs 500/- to Rs 1.5 lakh per annum) for 15 years. Currently, the rate of return on PPF is 7.1%. The interest rates for all small schemes are fixed by the government every quarter. The amount invested in PPF every year (up to Rs 1.5 lakh in every financial year) is eligible for tax deduction under section 80C of the Income Tax Act. The interest on PPF is compounding and is completely tax-free. Due to the tax exemption, it is preferred over other debt instruments, such as fixed deposits, where returns are fully taxed as per your slab.
Your PPF account is about to mature i.e. its period of 15 years is about to complete, so what should you do next? Renew investment? Withdraw money? Or reinvest in other options? Here are some suggestions that you can consider.
Allow PPF account to operate without any new contribution
If your account is about to mature soon, you can consider continuing your PPF account without any fresh contribution. With this, your PPF account will automatically continue for another 5 years. This way you will continue to earn tax-free interest at the end of every financial year, unless you ask your bank or post office branch to close the account. But, as you will no longer be making any new contributions, you will not be able to claim any tax-deductible benefits under Section 80C of the Income Tax Act. Your accumulated capital will continue to earn tax-free interest and you will also have the option to withdraw your capital at any time.
Extend PPF account and continue investing
If you want to continue with the new contribution to PPF even after the completion of 15 years, you can continue your account in blocks of 5 years. You have to duly inform your branch where you have your account within one year of reaching maturity. For this purpose, PPF account holders will have to submit Form ‘H’, which can be downloaded from the website of the bank or India Post. It is a simple, one page application which is submitted in the name of Bank Manager or Postmaster informing that you wish to continue the contribution to your PPF account for another 5 years. From Form H, you will get tax deduction on your principal amount and you will continue to get interest on the amount kept in the account. Extending the tenure of PPF will add to your savings as you continue to get tax-free income and guaranteed returns. Note the number of times you can opt for this five-year extension.
Close PPF account and reinvest in other instruments
You can close the PPF account and withdraw your lump sum amount after a period of 15 years. The accumulated corpus, which includes the principal amount and interest earned, will be tax-free. You can invest this amount further as per your risk appetite. There are many options in which you can invest. For example, you can opt for risk-free options like time deposits in the post office itself.
PPF is a fixed income, risk-free investment option that also offers tax benefits. But note that the interest rates are fixed quarterly and may fluctuate throughout the tenure of your investment. Therefore, any increase in the interest rate will increase your tax-free return, and any rate cut will reduce your return. Extending your PPF investment for a block of 5 years will give you attractive returns. And also you will get the option to close it anytime, whenever you need this savings for any of your purposes.
(The author of this article is Adil Shetty, CEO, BankBazaar.com)
(Disclaimer: This information is being given on the basis of expert reports. Markets are subject to risks, so take your own advice before investing.) (This article is written for informational purposes only. It is for investment purposes only.) should not be construed as financial or other advice)
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