“withdraw of money from PPF account before maturity”? PPF is a very common word that almost everyone has heard its name which means – Public Provident Fund. When we start earning something for living, almost every person in the society, family, suggests us to invest in PPF for savings. Today, in this article we discuss about this,

“Does Lock-In period allow withdraw of money from PPF account before maturity”?

There are some facts regarding PPF, which we should be aware of. You have often heard people say that depositing money in PPF means locking up your money. One of the big drawbacks about PPF is that its locking period is very long.

By the way, currently there are many investment products available in the Indian market. However, PPF (Public Provident Fund) still remains one of the best investment avenues for risk-averse investors and the common man.

The reason is that apart from giving better returns, this scheme also provides income tax benefits which are provided only by some limited investment products. But there are some conditions in withdrawing money from it. Before we go ahead, we need to know What is PPF Scheme and is it really a better option to invest in this scheme? we will also try to know what are the Lock-in period and Is it possible to withdraw of  money from PPF before maturity?

withdraw of money from PPF before maturity

PPF SCHEME

People must familiar with the term PPF which means ‘Public Profit Fund’.  The scheme was first introduced  by the National Savings Institute under the Ministry of Finance in 1968. The plan is designed to be a long-term savings plan with a maturity of 15 years. The main intention of the government behind the launching of PPF scheme was to promote the savings and investment habits of the people.

PPF account can be easily opened in both post offices and banks. Apart from this, all those banks which provide PPF facility can also provide facility to open PPF account through online medium. This is another feature of PPF. All you need to do to verify and print the application is to visit a bank branch.

PPF interest Rate

Let us now know about some main aspects of this scheme. The most prominent among them is interest rate. So we first discuss about the risk-return calculation. We will all agree that we invest for the purpose of earning a right return. So now let us understand how much return we can get after investing in PPF and is this scheme free from risk? If there are any risks, what are the factors associated with this scheme?

• PPF interest rate is calculated every quarter as per government rule.
• When the scheme was introduced, the rate of interest was only 4.4%. However, since then there have been many fluctuations in interest rates that have been officially recorded.
• In year 1999–2000, the PPF rate of interest reached 12%, which is a record in itself, But later reduced again.
• Talking about the interest rate of January 2020, it is 7.9% for PPF.
• interest calculation is done in the closing month of the year for your PPF account and interest money is deposited in your account on 31 March by the government.
• Since the scheme is protected and controlled by the government, it carries little risk and is one of the safest investment options.

Investment limits in PPF

Once the PPF account is opened, it is necessary to keep the account active. For this, you have to deposit in a Public Provident Fund (PPF) account every year. If you face financial crisis in any year, you can also keep your PPF account active with a minimum contribution amount of Rs 500. The maximum limit of PPF is 1.5 lakh rupees. More than this amount, you cannot deposit money in your account in a year. But the government provides you the facility to deposit any amount in your PPF at any time of the year. The rule is that this amount should be from 500 to 1.50 lakhs (subject to overall minimum and maximum). However, the government has given you additional facilities under PPF, where you can contribute a maximum of 12 deposit per year. The conditions are such that its maximum limit should be up to 1.5 lakhs. For example, you can contribute Rs 20,000 in April, Rs 50,000 in September and Rs 60,000 in March. The total amount contributed by you is Rs 1.30 lakh (less than Rs 1.5 lakh) and is, therefore, valid.

Suppose for some reason if we fail to deposit a minimum of 500 rupees in PPF in a particular year, then our account will be deactivated and we will have to pay a fine of 500 rupees to reactivate it.

What are the obstacles to withdraw money from PPF before maturity?

Lock-in period in PPF

By lock-in period we mean that in a particular scheme your money is locked for a certain period. The lock-in period of PPF scheme is 15 years, which means that you cannot withdraw your deposit before the completion of this period. PPF is believed to have the longest lock-in period if we compare it with all other tax saving instruments. There are also some benefits of having a 15-year lock-in period. One of them is that you earn more interest by investing for a longer period. Talking about other benefits, due to being a government scheme, there is less possibility of risk in it.

Can anyone withdraw money from PPF account before maturity?

As per the current rules in PPF, if a person has to withdraw the entire money from PPF account, then he will have to wait for the lock-in period of 15 years. However, partial withdrawal is allowed even before the maturity period.

Let us know how to withdraw money from PPF account before maturity.

• According to PPF account guidelines, a person can withdraw a maximum of 50% of the amount deposited in a PPF account only after 5 It is calculated after the completion of the 5-year term except the first financial year, so partial withdrawal from PPF account is done after completion of 6 years. That is, in 7 years you are eligible to withdraw money.
• But there are also some Guidelines to withdraw money. Although it is not possible to withdraw full money before the maturity of this plan. However, keeping in mind the uncertainties of life and some important needs, the plans offer a partial money back option.
• You may be able to withdraw partial money from PPF in the 7th year for selected reasons such as special occasions of life like education of your children or medical emergencies.

Benefits of PPF account

Now is the time to discuss the tax benefits of PPF account. You might know about NPS & Sukanya Samriddhi scheme. Apart from these two schemes, PPF is the only scheme that qualifies for EEE. EEE simply means exempt-exempt-exempt, which is a unique benefit. Unique benefit means that you can get 3 types of discounts on your investment.

If you open your PPF account and deposit 1.5 lakh rupees in it, then you get the first rebate as soon as you invest in PPF. Suppose you invest up to Rs 1.5 lakh in a PPF account, then you are able to claim a deduction under Section 80C at the time of tax return. It reduces your share of taxable income and gives you tax exemption. This way you can save up to Rs 4,6,800. If you calculate, you are investing Rs 1.5 lakh, but due to the discount of Rs 4,6,800, your actual investment cost is only Rs. 1.03 Lakh.

The second exemption is available on returns generated from PPF account. As per government rule We do not need to pay any tax on the return.

The question will come in our mind that why is it important? If we talk about bank FD, we will have to pay tax on whatever interest we can get or which is depositing above ten thousand. But this does not happen in PPF.

What are your third exemption? When you receive your final amount after maturity of PPF, you do not have to pay any kind of tax for this amount and this is your third exemption.

 Eligibility criteria to open a PPF account

We have now understood well about the tax benefits, now we understand the eligibility criteria required to open a PPF account.

• The primary criteria for a PPF account is that it is only for Indian citizen. According to government norms, NRIs and Hindu undivided families cannot open PPF account. However, HUF is allowed to invest in the account of a any one member in the family. It is not possible to open a joint account during this scheme.

Can someone open two PPF account?

• We will open just one PPF account in our name but if we have got a minor in  family, we will also open a PPF account on their behalf.

Can PPF account be transferred?

A person has the freedom to convert his post office PPF into bank PPAP and bank PPF into post office PPF. Apart from this, bank branch and bank can also be changed for PPF account.

How and where are you able to open the PPF account?

Now we have understood about the benefits and eligibility criteria of this scheme, then there is another special thing, which we should know. Do you know that PPF account opening fee is only Rs. 100 and you can start investing with a minimum of Rs 500. This means that it is not necessary that you deposit 1.50 lakh rupees in you PPF account. You can start investing with a minimum of 500 rupees as well.

That is, you have to spend 100 rupees to open the account and with a deposit of 500 you can keep this account active for a year. Since the eligibility criteria is clear, now you need to think how and where can you open a PPF account? You can open PPF account in banks or post offices as per your wish. Initially PPF account could be opened only in nationalized banks but now private banks also provide this facility.

Required documents to open a PPF account

Form together with your details. ID proof like –

• Aadhar Card, PAN Card for an identity proof (Voter ID/PAN Card/Aadhar Card)
• A proof of residence.
• The current address must be signature proof as well as the Passport Address proof.
• Passport size photographs.
• Pay-in-slip (available at the bank branch/post office)
• Nomination form.

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How to open PPF account online?

You must have an account in the bank where you want to open a PPF account. Only if you are a customer of that bank, you can open an online PPF account with the concerned bank anytime. The process is immediate and paperless. Here is a step-by-step guide:

• You must be a savings account holder of the bank. Your account should be linked to Net-banking / Mobile banking.
• Along with this, your Aadhaar number should also be linked to your account. Aadhar number is most important to be linked to the account
• Your mobile number which is linked to your Aadhaar should be activated, to get an OTP which is used for e-sign/ e-authorization to open PPF account instantly.

 PPF account online opening process

• Just sign in to the bank’s Net Banking. On this page under the Offers tab, click on the banner for ‘Public Provident Fund’.
• First of all, we have to confirm the details shown in the next screen and enter our amount which we want to deposit in PPF account. Then click submit.
• If our Aadhaar number is already linked to the account, then our form will be submitted successfully. After this a message is received that your account will be opened in one working day.
• If you have not linked Aadवhaar to your bank account then you must first link it to be able to complete the process.
• Once we open our online PPF account in a bank, then we can transfer funds directly from our savings account to our PPF account as well.

Disadvantages of PPF Account

Now once you know just about everything about PPF, you ought to also understand “Is it the most effective tax saving investment option for you?” We can say that PPF is a risk free or safest investment tool for the public, beacuse it is a government-supported scheme; due to this risk factor assosiate with it is almost zero.

Despite the many benefits of PPF, PPF is not a suitable investment tool for all because it has some limitations. Be aware of the disadvantages of PPF investment. But if you would like to use it to attain your future goals, then it won’t be a wise choice. Let’s understand  it with an example.

• Suppose you have invested in PPF for your child’s higher education. Currently PPF is offering you a 7.1% return, that is, you will get an interst of 7.1% on your investment every year till the lock-in-period is completed. But after 15 years, the cost of education will have increased much more than the amount you will get. Because you know that the cost of education increases by about 10% every year and will become more expensive in the coming days.
• If this trend continues, So the final fund for higher education can be lower than the fund of your PPF return. Otherwise, the lock-in period for PPF is 15 years, which is comparatively higher than any other tax saving tools.

Then what is the solution or replacement of PPF?

You can invest in ELSS mutual funds instead of PPF. It falls under the category of mutual funds where you get the same tax benefits. The good thing is that the lock-in period for these schemes is 3 years which is less than any other tax saving investment. Especially if compared to PPF, it is very less. Looking at long-term returns, if we compare, over a period of 5 years, these funds have actually beat PPF returns.

Everyone knows that high returns mean high compounding, which means a large investment fund. As we know that ELSS funds invest in the stock market, there may be a lot of instability in their returns. It is also possible that for 1 or 2 years you will get unsatisfactory returns or negative returns. But over the long term, ELSS mutual funds have historically given average annual returns of around 11%. So if you are planning to invest in ELSS, do not expect almost the same returns every year.

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Conclusion (withdraw of money from PPF before maturity)

As per the current rules in PPF, if a person has to withdraw the entire money from a PPF account, then he will have to wait for a lock-in period of 15 years. But the interest on PPF is completely tax free. However, experts do not consider PFF to be a very good investment option.

Experts say that PPF may not be the best option to save tax for those who are young professionals. I think youngsters can afford to take the risk. Other tax-saving instruments can give them higher returns, such as ELSS funds. Anyway, this is the old saying “no risk no gain”.

But with all our pros and cons, we can say that PPF is particularly popular among risk adverse investors who expect assured returns. PPF is also suitable for non-salaried people who are not eligible for pension benefits after retirement.