Public Provident Fund (PPF) has been a very popular mode of small savings for Indian investors. There are a variety of reasons for its popularity. Firstly, it is backed by the government and, therefore, the principal and interest are guaranteed. Secondly, the interest is entirely tax-free in your hands. So even at the current rate of 7.6% on PPF, the investment is still attractive. Thirdly, “the amount invested by you in PPF qualifies for tax exemption under Section 80C of the Income Tax Act. Lastly, the maturity amount is entirely tax-free in the year of redemption. It is these tax benefits that make PPF attractive,” says Vaibhav Agrawal, Head of Research and ARQ, Angel Broking.
PPF matures at the end of 15 years. The question is what to do when the PPF account matures? There are 3 options for you when your PPF account matures:
1. You can extend the PPF account without additional contribution
This is the default choice in PPF. If you don’t select any other option, then by default your PPF on maturity gets extended for a period of 5 years without additional contribution. While you can extend only for a block of 5 years, this extension can continue as long as you want. You continue to earn the tax-free interest on the PPF. What is more, you can also withdraw the amount any time you want.
2. You can extend the PPF account with additional contribution
Remember, when your PPF account matures, you need to specifically fill up Form H for extending the PPF account with contribution. Like in the previous case, you can keep extending your PPF for blocks of 5 years. But make sure that you submit this Form H to extend the PPF account with contribution within 1 year of your PPF maturity. “If that is not done, then you do not get Section 80C benefits on your contribution nor do you earn interest on your additional contribution. Opt for Form H carefully because once you opt for the PPF account extension with contribution, you cannot go back to the previous option,” says Agrawal.
3. Close the PPF account on maturity of 15 years
In PPF, the interest is not paid out regularly but it is accumulated in your PPF Account. When you withdraw, you get the principal and interest component without any tax liability. Once you opt for withdrawal, you can either withdraw the money in lump-sum or you can withdraw in instalments over a maximum period of 12 months. In case you do not specifically apply to close the PPF account it will, by default, get extended for 5 years with “No Contribution”.
What to do with the PPF corpus?
That is an interesting question. There are a variety of options. Firstly, if you are looking at safety and stability, you can invest the money in a debt mutual fund. Secondly, “if you are looking at immediate liquidity, you can opt for liquid funds. Alternatively, if you are still looking at wealth creation, then you can invest the sum in a liquid fund and sweep a fixed sum each month into equity funds. You get the best of both worlds,” informs Agrawal.
So, whatever you do, the choice is entirely yours!