The Public Provident Fund (PPF) is the old war-horse of the middle class Indian who wanted to save. This has been the situation for decades, with even newer generations unable to ward off the PPF charm. Offering fixed and guaranteed return, government safety and being reasonably hassle-free, PPF continues to garner crores from the risk-averse investors. Even though we all know the basics, there are some interesting nuggets that many of us do not know about this doyen of investment avenues. Let us do a deep dive:
1. Opening PPF accounts in joint names: Everybody knows that opening PPF accounts in joint names is not allowed. However, did you know that parents are allowed to open a PPF account on behalf of a minor child? Yes, it can be done. In case both parents are not alive or a living parent is incapable of acting, then a court-appointed guardian is eligible to open an account on behalf of a minor. But while parents are allowed to open accounts on behalf of minors, both parents can’t open two separate accounts on behalf of the same minor. When the minor attains majority, then they will be treated as the account holder of PPF and not the legal guardian.
2. PPF account cannot be attached: The money in the PPF account is yours and nobody can take it away. Yes, a PPF account cannot be attached by a person or entity to pay off any debt or liability. This is the gold standard of safety of an asset. Do remember our homes, if taken on mortgage, can be taken away if we fail to pay the EMIs. But in case of PPF money, even a court order or decree cannot make a person liable to pay off her/his debts using the money from her/his PPF account. This is a great protection for millions of PPF account holders. There is one caveat though — the Income Tax authority is free to attach and recover the dues of an account holder.
3. Nomination of nominees: PPF allows you to nominate more than one person. You can nominate one or more nominees to your PPF account if you so wish. The PPF account holder has to mention the percentage of share in case the nominee is more than one person. But do remember nomination is not allowed to an account opened on behalf of minors. You can change or cancel the nomination at any point of time during the PPF account period, but do note that you cannot nominate a trust to your PPF account. But being the nominee does not mean you will be allowed to continue the account. All the nominee gets is the right of ownership in terms of an authority to collect the money on the death of the subscriber and retain the money as a trustee for the benefit of the persons who are entitled to it under the law.
4. Misunderstanding about lock-in period: It is a common misunderstanding that PPF comes with a lock-in period of 15 years and is calculated from the day of account opening. Actually, it is slightly different. As per the PPF scheme rules, the date of calculation of maturity is taken from the end of the financial year in which the deposit was made. So, it does not matter in which month or date the account was opened. If your first contribution was made on June 1, 2018. The lock-in period of 15 years will be calculated from March 31, 2019, and the year of maturity, in this case, will be April 1, 2034. Do remember this technicality if you are counting on your PPF account maturity sum for an important time-sensitive financial event, like retirement or buying a house or repaying an important loan.
5. Discontinuation of PPF account: Some investors often forget their PPF account. Lack of minimum deposit can lead to discontinuation. If your PPF account is discontinued, you will still get the amount along with interest, but only at maturity. Such a discontinued account will earn interest every year till maturity is reached on the balance available for each year. Even withdrawal or loan facility is not allowed on such a discontinued account. If you want to avail loan or withdrawal facility, you will have to continue the account by paying the prescribed penalty and minimum subscription for the discontinued period. These rules tell you that you should do everything in your power not to let your PPF account become a discontinue done. Keep a note of the account and invest the minimum amount every year.
(By Anil Rego, Founder and CEO, Right Horizons)