Investing in Public Provident Fund — Part II

August 21, 2010

The investor is permitted to make one withdrawal every year beginning from the seventh financial year of an amount not exceeding 50% of the balance at the end of the fourth year or the financial year immediately preceding the withdrawal, whichever is less. This facility of making partial withdrawals provide liquidity and the withdrawn amount can be used for any purpose.

If the account is opened during FY 2000-01, the first withdrawal can be effected during FY 2006-07. The fourth financial year immediately preceding the withdrawal will be 2002-03 and the preceding year will be 2005-06. The amount withdrawable in the 7th year, FY 2006-07, ending on 31.3.2007 is 50% of the balance to the credit as on 31.3.2003 or 31.3.2006, whichever is lower.

The depositor can take a loan in the third financial year of opening the account for up to 25% of the balance at the end of second preceding financial year. Further, no loan can be taken after 6th financial year. Continuing with the previous example, the first loan can be taken during FY 2002-03 for 25% of the balance at the end of FY 2000-01.

The loan is to be repaid in 36 months following the month in which loan is taken, either in lumpsum or in installments. The fresh loan will be given only after previous loan is repaid in full with interest at 1% p.a. over the interest paid on PPF. Moreover, if the loan is not repaid within stipulated time, the interest would be charged @ 6% p.a. instead of 1% p.a. In the event of death of subscriber, his legal heirs/nominee shall repay the interest on the loan.

On maturity, the account can be closed by making an application for withdrawal of entire balance together with interest after adjustments, if any. However, the account can also be extended for any period in a block of five years at each time, with or without fresh contribution.

If the account is continued without fresh contribution, the entire sum can be withdrawn either in lumpsum or in installments not exceeding one in a year. If continued   with fresh subscriptions, withdrawal is permitted for upto 60% of the balance at the beginning of each extended period in one or more installments, but not more than once a year.

Part I, Part III