Public Provident Fund or PPF is one of the most popular investment options in India. People choose to invest in PPF not only to get lucrative returns but also to save their hard earned money from being taxed. It is an ideal vehicle for long term investment and an important retirement saving tool for individuals, more so for those who are not salaried employees who have EPF option.
Government has put icing on the cake by liberalizing the rules related to PPF withdrawal. Earlier a person was not allowed to close his PPF account before maturity. Maturity period of PPF is 15 years which is substantially long time. Even though partial withdrawals were allowed once the account completes 7 years, a person has to wait for 15 years to close his account.
The Finance Ministry in a notification dated 18th of June, 2016 informed that people can now close their PPF accounts prematurely. An account holder can now close their accounts once it has completed at least 5 years. Don’t jump for joy yet. There are certain conditions which one must satisfy in order to qualify for this. Broadly speaking, government has laid down only two exceptions for early closure of PPF accounts.
First, a PPF subscriber can close his account early if the amount deposited is required for treatment of some serious ailment of his wife, children, parents or himself. Second, if the amount is to be used for account holder’s or minor account holder’s higher education. In both the cases, you should be able to provide supporting documents if you want to close your account early.
Every good thing comes with a price. If you plan to withdraw early, you will face a trade-off between retrieving amount prematurely and earning maximum interest. If you choose the first option then you will receive a lower interest (1% less) than the one applicable. E.g. if you are eligible to receive an interest of 8% on your PPF balance in a particular year, then the interest for that year will be calculated @7% and so on. The reduced interest rates will be applicable throughout the period of investment. This is similar to interest penalty levied by banks in case of premature closure of fixed deposits.