The Public Provident Fund (PPF) remains a popular savings option in India, offering long-term financial security with consistent growth. But maintaining its active status requires some discipline. Account holders are required to 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.
While investors are free to make contributions monthly or annually, the timing of these contributions can influence the interest earned. Since PPF interest is calculated based on the lowest balance between the fifth and the end of each month, depositing a lump-sum amount in the scheme between April 1 and 5 is considered beneficial.
If investing the full annual amount at the start of the financial year is not possible, depositing funds before the fifth of each month can help maximise interest earnings and ensure better compounding over time.
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Penalty for missing a deposit and what happens next
Missing a PPF contribution can lead to the account becoming inactive. It requires a penalty payment of Rs 50 for each defaulted year along with the minimum required contribution for those years.
Suppose you miss contributions for around two years, then the account holder must pay a Rs 100 penalty and Rs 1,000 minimum deposits. This brings a total to Rs 1,100. Once this payment is made, the account can be restored to active status.
To reactivate a discontinued PPF account, you will have to submit an application to your bank or post office where your account is maintained.
Until then, the account continues to remain inactive but earn interest on the existing balance. Investors are not allowed to make fresh contributions as it can interrupt long-term wealth creation due to the break in compounding.
Even if you don't reactivate your account, 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.
What is a PPF and how is it useful?
This government-backed investment scheme is one of India's safe and reliable investment options, thanks to its tax benefits, stable interest earnings and ease of access. Primarily designed to encourage disciplined investing, PPF gained popularity as a retirement planning scheme. It allows investors to build a corpus while earning assured returns on their contributions.
PPF offers guaranteed returns at 7.1% per annum. It comes with a 15-year lock-in period and you cannot withdraw your money before it reaches maturity. This investment option has an EEE (Exempt-Exempt-Exempt) tax status, which means your investment and the interest are tax-free.
The best thing about this plan is that you can open a PPF account and start investing from as low as Rs 500 per year to Rs 1.5 lakh.
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