The government has retained the 8% interest rate on the Public Provident Fund (PPF) for the January to March quarter. PPF offers deduction benefits up to Rs 1.5 lakh on deposits and tax exemption on interest and withdrawals. An investor can make annual contributions upto Rs 1.5 lakh. A subscriber can avail loan of 25% of the balance amount available. The loan has to be repaid within 36 months. PPF has maturity period of 15 years, extendable any number of times, and can be closed prematurely after completion of five years for specific reasons like higher education or medical treatment.
According to a circular issued by the Finance Ministry, interest rates on 1-year post office time deposits (POTD) have been increased by 10 basis points (bps) to 7 per cent for the January-March, 2019 quarter. The interest rate on three-year POTD has been reduced by 20 bps to 7 per cent. Interest rates of other small savings schemes like Public Provident Fund (8 per cent), Sukanya Samriddhi Yojana (8.5 per cent), Senior Citizen Savings Scheme (8.7 per cent) and Kisan Vikas Patra (7.7 per cent) have been kept unchanged.
Minimum annual contributions of Rs 500 are required to keep the account active otherwise the account turns dormant. To reactivate a dormant PPF account, you have to visit the bank branch or post office where your account is held, and submit a written request. For each financial year that the account has remained dormant, a penalty of Rs 50 is levied, which must be paid to initiate the reactivation process. You also have to pay the minimum deposit amount of Rs 500 for each year your account has been inactive. Once the verification process is carried out, your PPF account will be reactivated.
The Public Provident Fund (PPF) provided an annual post-tax return of 7.7% in 2018. The National Savings Certificate (NSC) also returned 7.7%, but post tax, PPF turns out better. The top five ultra-short-term debt funds, which invest in securities with maturities between three months and six months, returned an average of 7.78%, but this was not a guaranteed return. The National Stock Exchange’s Nifty index gained 2.69%, generating negative return post inflation.