n the earlier piece, PPF could be taxed on withdrawal, we discussed the tax benefits on the Public Provident Fund and whether or not you are taxed on withdrawal.
Now, let us look at liquidity. In other words, how easy it is to access money from your PPF account.
Here are five most commonly asked questions.
1. How long is the lock-in period?
The maturity period is 15 years from the close of the financial year in which the initial subscription was made. At the end of this period, you get the entire amount (principal and interest earned).
The maturity date depends on the financial year, not on the date of its opening.
Example
Say the account was opened in the financial year 1990-1991 (the financial year is from April 1 to March 31). The scheme will mature on April 1, 2006 (1991 + 15 years).
That means you can make your last contribution even on March 31, 2006. The entire amount can then be withdrawn on April 1, 2006 or any time thereafter.
2. When can I withdraw from the account?
Say you need some money urgently and there still are a number of years to go for the PPF account to mature.
You can then make a partial withdrawal.
But you can do this is only after five financial years from the end of the year in which the initial subscription was made. In effect, this works out from the seventh year onwards.
The amount of withdrawal is limited to 50% of the balance in your account at the end of the fourth year -- immediately preceding the year in which the amount is to be withdrawn, or at the end of the preceding year. Whichever is lower.
Example
If the account was opened in 1993-1994 and the first withdrawal made during 1999-2000, the amount of withdrawal will be limited to 50% of the balance as on March 31, 1996, or March 31, 1999, whichever is lower.
3. What about a loan?
Sure you can. But only during a fixed period of time. You can take a loan from the third year of opening your account to the sixth year.
Also, the loan amount will be upto a maximum of 25% of the balance in your account at the end of the first financial year (if you opt for the loan in the third year).
If you opt for a loan in the fourth year, the second year's balance will be taken in to account and so on.
Example
Let's say the account is opened during the financial year 1997-1998. You can take the first loan during the financial year 1999-2000.
The amount will be upto a maximum of 25% of the balance in your account at the end of the first financial year (if you opt for the loan in the third year). In this case, it will be March 31, 1998.
4. How many loans can I take?
However many you want, though certain criteria have to be fulfilled.
- The loan must be repaid within 24 months.
- You can go in for a second loan only after the first loan is repaid in full.
- As mentioned above, you can take a loan only from the third year of opening your account to the sixth year.
Incidentally, the loan does not come cheap. Usually, the rate of interest on the loan taken will be around 2% above the rate of interest earned on the deposits in PPF.
Do note: only you can make a partial withdrawal or take a loan. Your nominee cannot.
5. What happens if I want to keep the account going?
Even after the expiry of 15 years, the PPF account can be extended for five years at a time.
You will still earn interest on your investment and avail of the tax deduction.
Should you die before the account matures, your nominee has the option of closing the account or continuing with it till maturity.
If s/he does not close the account on your death, the money deposited continues to attract interest, but fresh contributions, partial withdrawals and loans are not permitted.
Make PPF work for you!
When you invest in PPF, look at it from a long term point of view.
If you are, say, 22 years, you will get the money in your late 30's. You can probably utilise it as a down payment for your home loan. Or if you already have one by then, you could prepay your home loan. Else, just stack it away for retirement.
Most important, use the loan and withdrawal option only if you desperately need the money. I am not referring to a holiday here. A medical emergency is more like it.
Years down the road, when the cheque is handed over to you, you won't regret it.
