Small-savings instruments are particularly useful for common investors, who generally do not have a large investible surplus and have limited risk tolerance.

Within the universe of such investment avenues which are currently available in India, the Public Provident Fund (popularly known as the PPF) occupies a pride of place. It remains a perennial favourite on account of its sovereign-backed guarantee, tax deductions, complete tax-free returns and a reasonable rate of return on investment alongwith the benefit of compounding.

However, some investors, who are desirous of higher returns and can take additional risks in their portfolio, may find other market-linked instruments to be more favorable.

A PPF or Public Provident Fund is a savings scheme offered by the Government of India. The interest on the account is paid by the Government Of India and is set every quarter. It is also tax-free. The applicable PPF interest rate for the period 1st April to 30th June 2019 (Q1 FY 2019-20) was fixed at 8.0%, whereas the interest rate for the 2nd quarter of FY 2019-20 has been fixed at 7.9% The interest rate for the January – March 2019 quarter was also 8%.

Let us now delve deeper into the salient features of PPF:-

How to open a PPF Account?

PPF accounts can be opened at the post office, nationalized banks and major private banks such as ICICI and Axis. In several banks like ICICI and Axis, you can open a PPF account online through net banking as well. Once the account is opened, a passbook similar to a bank passbook is issued. All transactions such as subscription, interest, withdrawals, etc. are recorded in this passbook. Some banks simply allow PPF entries to be viewed online instead of issuing a passbook.

Who can invest in PPF?

Any individual who is a resident of India can open a PPF account. PPF accounts can also be opened by parents for their minor children. NRI’s cannot open PPF accounts. However, a resident Indian who has become an NRI after opening a PPF account can continue the account till maturity. Opening of joint accounts and multiple accounts are not allowed.

Minimum and Maximum Contributions:

The minimum annual contribution is Rs. 500 and the maximum is capped at Rs. 1.5 lakhs. The maximum limit applies to contributions made by a person for himself and for a minor child. There can be a maximum of 12 contributions in a year.

So, should you invest in the PPF?

This blog attempts to provide you with the answers by exploring this topic in a holistic manner, by weighing both the pros and the cons.

Benefits of PPF:

• Complete capital protection, backed by a sovereign guarantee
• Tax-free earnings upon maturity
• Returns guaranteed, as per the interest rates determined by the Central Government (these are set on a quarterly basis)
• Partial withdrawal and loan facilities
• Option to extend the scheme tenure (with or without contributions)
• Easy account opening through Post Offices or banks
• Minimum investment of just Rs. 500/- per year, making it ideal for small savers

Limitations of PPF:

• Difficult to consistently beat inflation with the PPF interest rate
• High lock-in period of fifteen years
• No facility for NRI’s and HUF’s to open a PPF account
• Only one account allowed per citizen
• Account cannot be closed prematurely before maturity
• Maximum investment per year is restricted to Rs. 1,50,000/-

With the gradual evolution, development and growth of the financial markets, especially the capital markets, several new market-linked investment products have gained increasing popularity and found favour with common investors, particularly in the last few years – yet, the PPF has still not lost its sheen and continues to remain a preferred savings instrument, especially for conservative investors with a low investible surplus and limited risk-bearing appetite.

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