What are the major benefits and limitations of PPF Accounts?

The fixed deposits have been the primary choices of the majority of people in India. For those, it could be one of the best modes of investment with assured returns because the rate of interest is also higher than other types of deposits. 

Let us discuss other significant benefits and limitations of PPF Accounts in brief.

Advantages of PPF Accounts:

1. The major advantage of depositing money in a PPF account is that whatever interest you will earn in between, is a tax-free return.
2. The rate of interest in case of PPF investment is comparatively higher than the traditional fixed deposits (FD).
3. You are eligible to avail a tax rebate up to 1,50,000/- as per 80C of Income Tax Act.
4. You can start investing with a minimum amount as 500/- and a maximum of 1,50,000/- per financial year.
5. You can deposit said amount in monthly instalments (12 months) by cheque, cash, bank transfer.
6. A partial withdrawal is allowed but after 7 to 15 years of maturity period. 
7. The PPF account can be opened in post offices, the recognised banks in India whether it is public or private sector banks.

Thus Investing in public provident funds offer several benefits when it is compared to other types of deposits like saving deposits, fixed deposits, recurring deposits or Flexi deposits.

Disadvantages of PPF Accounts:

1. The PPF accounts have a lock-in period of 15 years which can be extended in 5 years blocks, meaning you cannot withdraw the funds before 15 years.
2. The first financial year in which you have opened the PPF account will not be considered, meaning the maturity period would be fully 15 years besides the first year.
3. Only one PPF account per person is allowed, however, you can transfer your account anytime in any organisation.
4. The premature withdrawal is not allowed till the 3rd year from the date of opening, however, you can get a loan against the balance amount after a 3 to 6 years time period.
5. The monthly interest rate shall be applicable only if you deposit money into your PPF account from 1st to 5th of every month, otherwise, you would not earn any interest for that month.

Eligibility:

Any individual who is resident of India is eligible to open a PPF account in the post offices or any popular banks, but an NRI can’t open a PPF account in India. 

Nevertheless, if you have already opened a PPF account before having NRI status, you can still operate it up to 15 years but it can’t be further extended.

The PPF account of minors can also be opened but it shall be operated by their parents.

How to open a PPF Account?

The process of opening a PPF account is very simple. You can either approach the post offices and commercial banks or can apply online. 

You need to carry proof of identity, address and passport size photo and then fill the application form (Form A). The minors PPF account can also be opened under parents supervision.

If you hold an account in ICICI bank or HDFC bank, you can directly request for opening a PPF account through the internet banking portal.

Wrapping Up:

The PPF investments have always been preferred mode of investment for salaried as well as working professionals. The returns are not only guaranteed by the government but at the same time, it provides monthly compounding rate interest as well. 

Moreover, the downside part, the rate of interest is not fixed depending upon the market and the lock-in period is also very long.