New Delhi : The Public Provident Fund (PPF) remains a popular long-term savings option in India, but maintaining its active status requires some discipline. Account holders must deposit at least Rs 500 every financial year to keep their accounts operational. Failing to meet this minimum requirement results in the account being marked inactive by the bank or post office. On the other hand, investors can contribute up to Rs 1.5 lakh annually under the scheme.
While investors are free to make contributions monthly or annually, the timing of these contributions plays a crucial role in determining the interest earned. Since PPF interest is calculated based on the lowest balance between the 5th and the end of each month, early deposits can make a difference.
Making a lump-sum investment between April 1 and April 5 is advantageous, as it allows the full amount to earn interest for the entire year. If a lump sum is not feasible, depositing funds before the 5th of every month can still help maximise returns and ensure better compounding over time.
Skipping the mandatory yearly contribution leads to the account becoming inactive. To restore it, a penalty of Rs 50 per missed year must be paid, along with the minimum deposit requirement for those years.
For instance, if contributions are missed for two years, the account holder must pay Rs 100 as a penalty and Rs 1,000 as the minimum contribution, bringing the total to Rs 1,100. Once this payment is completed, the account can be reactivated.
To revive a discontinued account, an application must be submitted to the respective bank or post office. Until then, the account continues to earn interest on the existing balance, but fresh deposits are not allowed. This interruption can affect long-term wealth creation due to the break in compounding.
Impact of Not Reactivating The Account
Even if a PPF account remains inactive, it will still mature after 15 years. However, access to funds may be restricted unless the account is reactivated. Additionally, features such as partial withdrawals or loan facilities may not be available during the inactive period.
Why PPF Continues To Be A Preferred Choice
Despite these rules, PPF continues to attract investors due to its safety and tax advantages. Backed by the Government of India, it offers stable and assured returns, making it suitable for risk-averse individuals. Currently, the scheme offers an interest rate of 7.10 per cent per annum, which is reviewed quarterly by the government. Notably, this rate has remained unchanged since April 1, 2020. The scheme comes with a 15-year lock-in period, which can be extended in blocks of five years indefinitely.
PPF also enjoys EEE (Exempt-Exempt-Exempt) tax status. Contributions qualify for deductions under Section 80C up to Rs 1.5 lakh annually. Moreover, both the interest earned and maturity proceeds are entirely tax-free. After completing five years, investors can withdraw up to 50 per cent of the balance under specific conditions. Premature closure is also allowed in certain cases, such as serious illness or higher education needs.
