PPF referred to as Public Provident Fund is the safest & secure investment option. You can invest money into PPF & earn a fixed rate of interest as fixed by the government. It is similar to bank saving account with maturity period of 15 years. You can withdraw your money only after the expiry of 15 years. If you wish to get a tax benefit under section 80C, PPF is a good & secure option. No tax is levied on interest amount & amount received on maturity. Every year you are required to deposit at least Rs 500 in your account to keep it in running condition.
Loan against PPF
This option helps in arranging loans for you at cheapest rates for short period of time. It is the easiest and cheapest method of taking loan. Personal loans from banks carry a high rate of interest normally 14% plus whereas loan against PPF currently carries only 10.6%.
Conditions for loan eligibility
- Time period in which loan can be taken – You cannot avail loan immediately after opening a PPF saving account. You are eligible to avail loan against PPF after completion of one year from the end of fiscal year in which ppf account was opened. Also the loan can be taken before the expiry of five years from the end of the fiscal year in which account was opened. For eg if PPF account is opened in Aug 2014 then loan can be taken from April 2016 to March 2020.
- Limit on loan amount – There is a limit of loan amount that can be availed against PPF balance which is 25% of the balance left in the account at the end of second year immediately preceding the year in which loan application was filed. For example, if loan is applied in Nov 2016, then 25% of the balance in PPF account at 31st March 2015 shall be the limit of availing loan.
- Limit of one loan at a time – You cannot take two loans against PPF account at one time. The previous loan must be repaid first to obtain second loan. Moreover you can avail loan against PPF only once in every 12 months, even if previous loan is settled.
- Interest Rate – The interest rate charged on loan is 2% more than the interest rate received on PPF account. It means you are required to pay only 2% interest on loan availed by you which is a very beneficial option as personal loan availed directly will charge very high rate of interest, generally between 14-21%.
- Repayment options – The principal amount has to be repaid within 36 months. Loan against PPF includes easy repayment options as loan can be repaid in lump sum or in two or more monthly installments. If interest amount is not paid, it can be deducted from your PPF account balance.
In case there is default in repayment after the end of 36 months, an increased rate of interest will be charged i.e. 6% more than what you are receiving on your deposits. It is recommended that one should do his own research & gather full knowledge of the concept before taking decision regarding loan against PPF.
The loans availed against PPF account have many benefits:
- For availing this loan facility, no other security is required
- Loan repayment period is generally 3 years
- Interest rate is lower as compared to personal loans availed directly from bank