The PPF (or Public Provident Fund) continues to be a solid debt product, despite the recent rate cuts. Given the sovereign safety and investor-friendly exempt-exempt-exempt (EEE) tax-free status, it is a product suitable for all investors, and certainly for those who do not have access to the EPF (employees’ provident fund) via their employers.
As you already know, PPF has a tenure of 15 years. But what happens after the end of 15 years?
You have three options. Let’s discuss them in detail.
Close the PPF account after 15 years: This is as simple as it sounds. Once the initial block of 15 years is over, you can close the account and get the full PPF kitty tax-free.
Extend the PPF account by five years without further contributions: This option allows you to extend your account maturity by 5 years. That is, the corpus will continue to earn interest. And you don’t have to make any fresh contributions during this extended five-year period. But what if you need some money during these five years? You can withdraw any amount as partial encashment during the five-year period.
The only catch is that you can make only one such withdrawal per financial year. So let’s say your PPF account completes the 15-year period and has Rs 25 lakh. Now you extend it for five more years. After two years, the balance is Rs 28.6 lakh (after 7 per cent interest accumulation). Now you can withdraw any amount lower than this sum once a year. So, you have complete flexibility. It is like having a five-year FD with full tax benefits and savings account like liquidity (at least in theory) once a year. In case you do not inform the bank or post office about your preference after 15 years, this is the default option that becomes applicable to your PPF account.
Extend the PPF account by five years with contributions: This option is similar to the previous one in the sense that it allows you to extend the PPF account maturity by five years. The only difference is that you now need to make fresh contributions every year. How much? The minimum is Rs 500 per year, which isn’t much to be honest. By the way, you need to inform the bank (or Post office) of this choice as in absence of intimation from you, it will be treated as PPF extension without contribution and any deposits you make in the account in this five-year period will not earn you any interest.
And what about making withdrawals during this five-year period? You can withdraw a maximum of 60 percent of the account balance that was prevailing at the start of the five-year extension period. So let’s say your PPF account has Rs 25 lakh at the end of 15 years and you extend it with contributions for five more years; then, you can withdraw a maximum of Rs 15 lakh (i.e., 60 percent of Rs 25 lakh).
So these are the three options you have when your PPF account matures after 15 years. By the way, you can extend your PPF account by five years any number of times. So you can push your PPF account’s maturity to 20 years, 25 years, 30 years and so on.
One more thing about the calculation of the 15-year period.
The maturity period for the PPF account is 15 years from the close of the financial year in which the initial subscription was made. It is that simple. Let’s say you opened your PPF account on Nov 4, 2014. So, your PPF account would mature on April 1, 2031.
What should you do?
Generally speaking, if you do not have the requirement for the entire PPF account balance in one go, it’s best to extend it. That too with contributions. Why? It is a great tax-free, EEE status instrument, in which you can park funds if you receive them during the five-year period. And for people who are still young when their PPF account completes 15 years, it is is strongly advisable to extend the account.