PPF investment guide: These 5 costly mistakes could reduce your returns or make you lose key benefits
Public Provident Fund (PPF) remains one of the most popular long-term savings option for Indian investors as it offer government-backed safety, tax benefits and attractive compounding over a 15-year lock in period. Many people open a PPF account early in their careers and continue contributing for decades as part of their retirement or wealth-building strategy.
This scheme offers a 7.1% interest rate per annum. It also enjoys “Exempt-Exempt-Exempt” tax status, meaning your yearly deposits, the interest you earn, and the final maturity amount are all completely tax-free. Any Indian resident can open a PPF account, but NRIs are not permitted.
However, simply having a PPF account does not guarantee that you will get the maximum benefit from it. In this article, we will discuss five such common mistakes that may make you lose out on above mentioned benefits.
Missing the minimum ₹500 annual contribution
If you fail to deposit the minimum required amount of ₹500 in a year, your account will become inactive. This will restrict further deposits and access to all the account benefits that you would have otherwise received through regular investments until hitting maturity.
However, if your PPF account has lapsed due to non-compliance, it can be reactivated by visiting the branch from where you operate your PPF account and submitting a request for re-activation of the account along with a penalty.
Investing after the 5th of the month
If you invest in your PPF account before the 5th of each month, your deposit will be included in the interest calculation of that month. However, if you miss the deadline, you will miss out on the interest for that month.
In others words, if you deposit your money between 1 and 5 August, your money starts accruing interest from August itself. However, contributions made after 5th of this month will start the entire interest calculation from September.
Therefore, investing in a PPF account before the 5th of every month helps you maximize your returns in the long-term.
Exceeding the ₹1.5 lakh annual limit
Investing more than ₹1.5 lakh a year in a PPF account would not give you any additional benefit. The excess amount earns no interest and provides no tax benefits upon maturity.
If the bank or post office accidentally credits interest on the extra money, that interest can be taken back or reversed when discovered. This is because PPF accounts are tied to your PAN, so making extra deposits across multiple accounts will be flagged as irregular.
The ₹1.5 lakh annual ceiling includes deposits made into your own account plus any accounts opened for your minor children.
Opening multiple PPF accounts in your own name
The scheme does not allow an investor to make multiple personal PPF accounts across different banks or post offices, even if you think nobody will be able to trace it and you can claim double or triple the benefits.
The rules also clearly mention that joint PPF accounts are not permitted under the scheme, according to provisions published on the official website of the National Savings Institute under the Ministry of Finance.
Opening separate accounts at different banks or post offices does not create additional eligibility as PPF accounts are linked to the depositor’s PAN and identity details. If multiple accounts are found, authorities may treat the additional account as irregular under the PPF rules.
Withdrawing or closing PPF without knowing rules
As mentioned above, PPF comes with a lock-in period of 15 years. But, if someone wishes to close their account before maturity, it is permitted only after completing five full financial years.
However, one can claim this benefit only under certain circumstances such as medical treatment for the account holder, spouse, children or dependent parents. You can also claim your funds if you or your children want to pursue higher education or in cases of change in residency.
The government applies an interest penalty for early closure, meaning the final payout is recalculated at a rate 1% lower than the interest earned throughout the investment tenure.
To initiate withdrawal, an investor must submit Form-5 to their bank or post office, accompanied by the passbook and relevant documents that would support why you are closing your account before the maturity date.
