Unlike many instruments, where you need to take your money after maturity or reinvest the proceeds at the prevailing interest rate, Public Provident Fund (PPF) offers you some flexibility.
PPF is a 15-year instrument and arguably India’s best fixed income investment. Your contributions earn you income-tax deduction benefits under Section 80C, up to an investment of Rs 1.5 lakh. Interest and redemption too are tax-free. But what do you do with your PPF account once it complete 15 years?
If you do not need the PPF money for a few years more, it’s best to extend the account maturity by 5 more years. In fact those who are earning well can also choose the Extension-With-Contributions option.
But that’s not your only option. Let us look at how people with different requirements must decide what to do with a maturing PPF account.
Before we discuss that in detail, let’s first have a look at what all options are available. Broadly, there are three options:
Close the PPF account
Take the entire PPF corpus tax-free. The account gets closed for good.
Extend for 5-years WITHOUT Contributions
In this, the PPF account tenure is extended by 5 more years but you do not make any fresh contributions. The account balance continues to earn interest for these 5 extended years.
And what if you need to withdraw money? You can do it but only one withdrawal is permitted every year. But there are no limits on the size of the withdrawal. So from the PPF account balance of Rs 25 lakh, you can even withdraw Rs 23 lakh in one shot during this extended period (with this chosen option)
Extend for 5-years WITH Contributions
In this case, you will have to make (at least minimum) contributions to your PPF account every year during the extended period. The account balance and fresh contributions continue to earn interest.
But there are a few withdrawal restrictions. During the 5 years, you can only withdraw a maximum of 60% of the account balance that existed at the start of the extension period. So if you had Rs 40 lakh at the start, you can withdraw 60% of that, which is Rs 24 lakh. Also, only one withdrawal per year is permitted.
Just remember, if you do not inform the bank or post office about your choice of extension, then Extension-Without-Contribution is the automatically chosen option.
Also, any change of interest rate throughout the tenure of your instrument also affects existing PPF accounts and their entire balance. The good part is that unlike other fixed income investments, like a bank deposit, you do not need to reinvest your proceeds into a fresh account with a new tenure, once your PPF matures. The extension of just five years, given that PFF’s tenure is 15 years, is reasonable.
By the way, the extension process will require you to visit the branch physically at least once. And given the nature of many branches and how they handle things, you should have patience and know the rules of extension beforehand. There have been cases where branches have forced people to close PPF accounts and start new ones with fresh 15-year lock-in!
That was about the available options. Now comes the question of how to use these options.
How to choose the right maturity extension/closure option?Here are a few thoughts on picking from among these options: