Hey Gen Zs! Have you ever heard your parents or other family members talk about PPF and how important it is to have it in their investing portfolio? You’re not alone if you’ve ever thought about why PPF matters so much and which section it falls under. The Public Provident Fund (PPF) may seem somewhat outdated but believe us when we say that it’s an asset in the world of finance, particularly if you want to reduce your taxes while securing your financial future. In this blog, Dive Money will discuss PPF comes under which section, also covering other verticals around PPF investments, and why Gen Zs should care about it.

What exactly is the PPF?

The Public Provident Fund, or PPF, is an Indian savings program established in 1968 and funded by the government. The concept was straightforward but effective: promote modest savings and direct them towards a risk-free investment that increases your money and provides tax advantages. PPF is like that trustworthy old buddy who never lets you down if you’re seeking a safe investment choice but are risk-averse.

But here’s where it gets interesting: PPF is not just about safety, it’s also about making your money work harder for you, all while giving you some serious tax breaks. How? Well, that’s what we’re here to explore.

Which section does PPF come under?

Let’s get straight to the point. PPF comes under Section 80C of the Income Tax Act, of 1961. If you’re looking to save on taxes, this section allows you to claim deductions of up to ₹1.5 lakh per financial year on your taxable income.

But PPF doesn’t just stop there, it provides three major tax benefits that are tough to match. They are:

1. Tax deduction on contributions

You can lower your total taxable income by claiming the PPF investment amount as a deduction under Section 80C.

2. Tax-free interest

You may grow your investments without worrying about deductions from your income since the interest you earn on your PPF balance is entirely tax-free. Your money will continue to work for you without paying any taxes due to this exceptional benefit.

3. Tax-free maturity

When your PPF account matures after 15 years, the entire amount you withdraw (principal + interest) is tax-free.

PPF is one of the few tax-free investment options in finance lingo at all three stages of investment, accumulation, and withdrawal since it falls under the Exempt-Exempt-Exempt (EEE) model.

Why Gen Z should start investing in PPF now?

Opening a PPF account at an early age could majorly affect your financial future. Compound interest gives your funds more time to grow if you invest in PPF today. Since PPF is a government-backed program, it provides an ongoing return that is free from the ups and downs of the stock market. It’s a wise choice if you want to gain long-term rewards and create a safe financial buffer with no risk.

Here’s why PPF stands out for Gen Z:

  • Flexible investment: PPF is suitable for you no matter whether you choose to contribute monthly or lump sum investments.
  • Tax savings: Section 80C provides a tax deduction on both the interest earned and the maturity amount. If you are earning and paying taxes, PPF might assist you in saving a significant amount of your hard-earned money.
  • Easy access: After the fifth year, you can begin making partial withdrawals, and you just need to deposit once a year. Make sure your money is working for you without any hassles by doing this.
  • No joint accounts: PPF is an individual account, so it’s all about building your financial independence.

By opening a PPF account right now, you’re setting the foundation for a strong, secure financial future in addition to saving for the future.

How does a PPF account work?

The majority of Indian banks and post offices provide PPF accounts, which are very easy to open. It’s really simple to open one online with internet banking! 

Here’s a quick guide on how it works:

  1. Tenure: The account has a tenure of 15 years, but you can extend it in blocks of 5 years if you wish.
  2. Investment limits: You can invest as little as ₹500 and as much as ₹1.5 lakh per financial year. 
  3. Interest rate: In 2024, the annual compound interest rate on PPF will be 7.1%. The Finance Ministry reviews and adjusts the rate on a quarterly basis.
  4. Deposits: You must deposit a minimum of ₹500 annually to maintain the account open.
  5. Nomination: You can nominate someone for your PPF account at any time.
  6. Withdrawal: Partial withdrawals begin in the sixth financial year, but the entire amount can only be taken out after the 15-year maturity term.

The magic of PPF interest rates and how they work

One of the cool things about PPF is how its interest works. From the closing of the fifth day to the last day of each month, the interest is calculated on the lowest balance. Therefore, be sure to submit your contribution by the fifth of each month as soon as possible in order to optimise your returns.

Although not too high, the interest is constant and assured. The magic happens here, as your money continues to grow faster than you could have expected over the course of the 15-year period because the interest is compounded annually.

Consider this: if you invest ₹1.5 lakh annually for 15 years at the current 7.1% annual rate, you will have more than ₹40 lakh when you reach adulthood! And remember, all of this is tax-free!

Can you take a loan against your PPF? Absolutely!

The ability to take out a loan against your balance is just another cool feature of PPF. If you need money before your PPF matures, this can come in quite handy.

Here’s how it works:

  • You can take a loan from the 3rd year of opening the account up to the end of the 6th year.
  • The loan amount can be up to 25% of the balance at the end of the 2nd year preceding the year in which the loan is applied.
  • The loan’s interest rate is just 1% more than the prevailing PPF interest rate, and it must be repaid within 36 months.

If you need more funds later, you can even take a second loan after repaying the first one.

What about withdrawals? Partial and full

Your PPF amount can only be completely withdrawn when the account matures, which happens after 15 years. This means that you can end the account and withdraw the entire money, including the accrued interest.

However, what happens if you need money before the fifteen years are up? Not Don’t worry! After 5 years of account creation or the 6th year, PPF allows partial withdrawals.

Here’s how it works:

  • Withdrawal limit: You may withdraw up to 50% of the balance in your PPF account at the end of the fourth year prior to the withdrawal year or the previous year, whichever is lower.
  • Frequency: You can make these withdrawals only once per financial year.

So, if you need money earlier, PPF allows you to access part of your funds.

How to open a PPF account: Online and offline

It’s never been simpler to open a PPF account. You have options, depending on whether you’re more of a tech-savvy person who enjoys doing things online or if you prefer going to banks and post offices the traditional way.

Offline method (Post Office/Bank)

  • Step 1 – Get an account opening form from your nearest post office or participating bank.
  • Step 2 – Fill out the form and attach KYC documents (Aadhaar, PAN, etc.), a passport-sized photo, and your initial deposit (anywhere from ₹500 to ₹1.5 lakh).
  • Step 3 –  Submit the form, and you’ll receive a passbook with your account details.

Online method (Through your bank’s net banking)

  • Step 1 – Log in to your Internet banking account.
  • Step 2 – Select the ‘Open a PPF Account’ option.
  • Step 3 – Fill in the required details and submit.
  • Step 4 – You’ll receive an OTP on your registered mobile number—enter it to confirm.
  • Step 5 – Your PPF account will be created instantly, and you’ll get the account details via email.

Who can open a PPF account? Eligibility check

Before you rush off to open your PPF account, let’s make sure you’re eligible:

  • Indian resident: Only Indian citizens can open a PPF account.
  • Single account: You can open only one PPF account in your name. However, you can open a second account on behalf of a minor.
  • NRIs and HUFs: Non-resident Indians (NRIs) and Hindu Undivided Families (HUFs) are not eligible to open new PPF accounts. However, if they already have one, it remains active until maturity.

Therefore, before opening your PPF account, make sure you meet these criteria!

What if your PPF account becomes inactive? Don’t panic!

It’s likely that you will forget to make the annual minimum deposit because life becomes busy. Your PPF account will go inactive if that occurs. However, don’t worry, the world is not ending!

Here’s how you can reactivate it:

  1. Visit the bank or post office where your account is held.
  2. Submit a written request to reactivate the account.
  3. Deposit a minimum of ₹500 for each year you missed, along with a penalty of ₹50 per inactive year.
  4. Your account will be back in action, ready to keep your money growing.

And if you need any help with the process, Dive Money is here to assist you every step of the way!

PPF vs FD vs Mutual Funds: What’s the difference?

If you’re looking for safe investing solutions, you may be comparing mutual funds and fixed deposits (FDs) with PPFs.

Here’s a simple breakdown to help you decide:

PPF-vs-FD-vs-Mutual-Funds

Is PPF a good investment for Gen Z?

The answer for Gen Zers asking if PPF is a wise financial decision is definitely yes! Although it might not be the most exciting investment, young individuals like you might gain much from it. PPF can be helpful for your financial plans in the following ways:

  • Save for big goals: Opening a PPF account now will help you save for expensive needs like a new device, a trip, or even a down payment on a house. Increase your savings over time by reserving a little part of your monthly allowance. You never know when that new gadget or dream vacation will come true!
  • Build an emergency fund: PPF is also an excellent option for creating an emergency fund. After the sixth year, you can take partial withdrawals, providing a safety net in case of crises or unexpected expenses.
  • Invest in your future: As your PPF balance increases, you’re putting yourself in a good spot for the future. The growth guarantee and tax-free returns provide a strong basis for larger financial goals, such as financing a car purchase or further education.

Dive Money: The easy way to reach your financial goals

Do you need an extra push to reach your financial goals? Dive Money is here to help you! You may more quickly and easily achieve your savings objectives using Dive:

  • High interest rates: Earn up to 10.5% on your savings.
  • Secure savings: Daily returns are guaranteed.
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Whether you’re planning for an event, a trip, upcoming annual bills, gadgets, or just regular money growth, Dive Money can help. Set aside money towards your goals at your own pace.

Saving money doesn’t have to be difficult or boring. You may automate your savings with the Dive app by using interesting rules, such as creating automatic SIPs or setting up up high interest rates to help you save money more quickly. Make sure that saving is rewarding and fun!

So, what are you waiting for? Download Dive Money now and start saving with just ₹100. It’s time to take control of your goals and make saving a fun part of your routine!

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Conclusion

Although PPF isn’t the latest investment option available, it’s still popular for good reason. It is comparable to planting a tree now that will produce fruit and shade for many years to come.  So, if you’re serious about securing your financial future, PPF deserves a spot in your investment portfolio.

Remember, the sooner you start, the bigger the benefits—both in terms of compounded growth and tax savings. So, what are you waiting for? Let PPF be your partner in growing your wealth as you take the first step towards a future free from financial insecurity!

Feel free to contact us if you have any questions. Let’s make your money work harder for you!