A Public Provident Fund (PPF) is a scheme for building corpus for post-retirement life by depositing a sum of money over a long period of time. According to the rules, an investor can open this PPF account in any bank or a nearby post office by depositing ₹100. It is necessary to deposit a minimum of ₹500 in the account every year.
A PPF account falls under exempt-exempt-exempt category which allows taxpayers to claim income tax benefit under Section 80C on the annual deposit of ₹1.5 lakh. According to norms, there is a 15-year lock-in period in which a depositor can put in ₹1.5 lakh in a single deposit or in a maximum of 12 instalments.
An interest rate of 7.1 per cent is payable on quarterly basis on a PPF account. In case a person invests money every year with discipline, he/she can end up saving ₹1 crore at the time of maturity.
Although, the PPF account has a maturity period of 15 years, but one can extend the account in block of five years for infinite number of times, Jitendra Solanki, SEBI registered tax and investment expert, told Hindustan Times’ sister website Livemint. It means that an investor can continue the PPF option without withdrawing the money. While extending the PPF account for the next five years, the depositor also has an option to pick extension with investment or without one.
However, some experts do suggest picking the extension with investment option for the PPF account. According to Kartik Jhaveri, director (wealth) at Transcend Consultants, choosing extension with investment helps to get interest on both the PPF maturity amount and the fresh investment.
In case an earning individual opens PPF account at the age of 30 and after the mandatory 15-year locking period, extends the investment on three occasions (15 years), he/she would have invested for a total period of 30 years. Let’s say the amount invested per year is ₹1.5 lakh in a PPF account. After 30 years, the maturity amount will end up to be ₹1.54 crore on condition that the interest rate remains at 7.10 per cent per annum.
