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Public Provident Fund (PPF)

PPF investment – Pros and Cons
PPF had been a great investment option with a low risk and assured returns. The account can easily be opened with scheduled banks – SBI, ICICI, etc. and with the Post Offices. The account opening procedure is quite similar to that of opening a Savings Account.
The Rate of Interest starting Apr 01, 2020 is fixed at 7.10% by the government. It is better than the fixed deposit interest rate which is 4.90% p.a. in SBI (w.e.f 10-09-2020 for 1 year term FD for General Public for deposit below INR 2 crores).
SBI deposit rates here - https://sbi.co.in/web/interest-rates/deposit-rates/retail-domestic-term-deposits
PPF offers following benefits:
·         Risk free investment.
·         Returns are better than Fixed Deposits.
·         Interest earned is Tax free.
·         The investment can be claimed under Section 80C under which maximum of 1,50,000/- can be claimed in a financial year.

However, there are some cons associated with it too.
·         Lock in period of 15 years.
·         Interest Rate is on decline continuously. It is being revised by government quarterly now.
·         Returns are not that good when we consider inflation. In other words, inflation adjusted rate of return may be nearly zero.
General Queries:
·         PPF or VPF – which one is better: Voluntary Provident Fund is an option available to salaried employees where they can ask the employer for additional deduction from their salary and contribute towards Employee Provident Fund (Member’s Contribution). VPF earns interest rate equal to EPF which is always slightly higher than PPF. It can also be claimed under 80C. So, the benefit of VPF is higher return. PPF in turn offers the benefit of getting matured in 15 years and is independent of your occupation. PPF can be opened by any Indian Citizen not necessarily employed.
·         Maturity time: PPF account matures in 15 years. After this time, you have the option to withdraw the accumulated money or to extend the account for further 5 years.
·         Minimum contribution: A minimum of Rs 1,000/- in a year is to be deposited to the account to keep it active.
·         Maximum Contribution: You can deposit a maximum of Rs. 1,50,000/- in your PPF account in a financial year. However, you may choose to open PPF account for your spouse/ children and deposit money in their account.
    IMPORTANT - Only ONE PPF account is allowed to be maintained in an individual’s name.

Details of Rate of Interest of PPF over the years:
PPF Interest Rate 1986 to Jan-2000            : 12.0%
PPF Interest Rate Jan-2000 to Feb-2001     : 11.0%
PPF Interest Rate Mar-2001 to Feb-2002    : 9.5%
PPF Interest Rate Mar-2002 to Feb-2003    : 9.0%
PPF Interest Rate Mar-2003 to Nov-2011    : 8.0%
PPF Interest Rate Dec-2011 to Mar-2012    : 8.6%
PPF Interest Rate 2012-13                            : 8.8%
PPF Interest Rate 2013-14                            : 8.7%
PPF Interest Rate 2014-15                            : 8.7%
PPF Interest Rate 2015-16                            : 8.7%
PPF Interest Rate 2016-17 (Apr-Sep)           : 8.1%
PPF Interest Rate 2016-17 (Oct-Mar)           : 8.0%
PPF Interest Rate Apr-2017 to Jun-2017      : 7.9%
PPF Interest Rate Jul-2017 to Dec-2017       : 7.8%
PPF Interest Rate Jan-2018 to Sep-2018      : 7.6%
PPF Interest Rate Oct-2018 to Jun-2019      : 8.0%
PPF Interest Rate Jul-2019 to Mar-2020      : 7.9%
PPF Interest Rate Apr-2020 to Sep-2020     : 7.1%
The interest rate though is showing declining trend, it is still better than many other options, especialy Fixed Deposits.

Comments are welcome for any clarification/ update required in this article.
Disclaimer: This article intends to serve the basic know how of PPF account. The writer assumes no responsibility for any loss to the individual on any account. Please take professional help before making any decision.

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