Because of its low risk and tax advantages, Public Provident Fund (PPF), a long-term investment programme backed by the Indian government, is one of the most well-known fixed income schemes. The government determines and adjusts the PPF interest rate on a quarterly basis. The current interest rate is 7.1% per annum (compounded yearly) as of April 2023. The investment made in the PPF plan is eligible for a tax deduction under Section 80C of the Income Tax Act and has a lock-in period of 15 years. After the PPF account’s lock-in term, the account holder has two options: they can either quit the account by taking the maturity amount or they can extend it for a block of five years. But should you as an investor close or extend your PPF account after 15 years of lock in period, let’s know from our industry experts.
Naveen Kukreja, Co-Founder & CEO of Paisabazaar
Existing PPF depositors who don’t have any pressing need for money should extend their PPF A/c after the completion of the 15-year lock-in period. Fresh contributions of up to ₹1.5 lakh within a financial year in the extended PPF Account would qualify for tax deduction under Section 80C. The interest income from PPF is also tax-free and is compounded on a quarterly basis.
Moreover, being managed by the Union Ministry of Finance, PPF account comes with sovereign guarantee, the highest form of capital protection available to any investor. Partial liquidity is also offered to the extended PPF Accounts as the depositors can withdraw up to 60% of the PPF balance (held at the time of account extension), either in a single or in yearly instalments.
Note that the extension of PPF A/c is allowed in the block of 5 years and so on. To extend their account, PPF depositors have to notify and submit Form 4 to the concerned post office or bank within 1 year of the account maturity.
Rajani Tandale, Product Head – Mutual Fund
When considering closing your PPF account after the 15-year lock-in period, it’s essential to have a clear understanding of your financial goals and liquidity needs. If you need the money immediately for any reason, such as a financial emergency or to meet any important financial goal, closing the PPF account could be a viable option.
However, if you can afford to leave the money invested for some more time and don’t require immediate access to the funds, extending your for a block of 5 years could be a better option, as PPF continues to earn interest even after maturity.
PPF provides 7.1% tax free returns which is an attractive rate of return in fixed income basket, whereas bank FDs and debt mutual funds are taxed as per the tax slabs. PPF falls under the Exempt-Exempt-Exempt (EEE) category, which means the investment, interest earned, and maturity proceeds are tax-free.
It is important to note that you can make partial withdrawals from the account after the initial lock-in period, subject to certain conditions. Additionally, you can also continue to make contributions to the account during the extension period.
In summary, the decision to close or extend your PPF account after 15 year of lock-in period depends on your financial goals and liquidity needs. If you need the money, you can close the account, but if you can afford to leave the money invested, you can extend the account for a block of 5 years and continue to earn interest.
Manu Rishi Guptha, Founder of MRG Capital, a SEBI registered Portfolio Management Company
Currently, a PPF account offers a 7.1% interest rate with 15-year lock-in period. Though the interest rate offered is not fixed and is set every year by the Government, tax benefits offered by the PPF investments make them a formidable investment option among others. Investment, interest earned and redemption amount are all tax exempted in PPF investments.
The redeemed PPF amount can be further extended in the same PPF with lock in of 5 years. One another option is to put the redeemed amount in a tax free FD which can offer better returns than a PPF account and offer tax deduction benefits. FDs will offer better liquidity even though they have five year lock in as banks easily give credit against the fixed deposits. Breaking a FD with a bank is more easy than breaking an extended PPF account. So, it is advised to put the redeemed amount from a PPF account in a tax free FD offered by a good bank.
Aniruddha Bose, Chief Business Officer, FinEdge
We would advise investors against extending their PPF account after the mandated lock in period finishes. Irrespective of your life stage, there are better options available. If your lock in finishes near your retirement age, you should ideally set up a systematic withdrawal plan from a well-planned portfolio of mutual funds, to generate a predictable income from your accumulated corpus.
If you still have several years to go till your retirement, you are better off investing your PPF proceeds aggressively into equities and maximizing your wealth. After all, the PPF is really not much more than an illiquid fixed income investment, so it doesn’t fully solve the problem of income generation or capital growth! A competent Advisor can help you plan your PPF proceeds efficiently while balancing your various financial goals and priorities.
Nirav Karkera, Head of Research, Fisdom
Extending your PPF account can be wise if you don’t require immediate access to funds, as it presents a lucrative opportunity for fixed-income investment. The PPF scheme also allows you to invest any extra money during the five years and earn tax-free returns under the EEE status while benefiting from compounding. It’s worth noting that investors can extend their PPF account with or without further contributions for a block of five years.
This flexibility allows individuals to continue earning interest on their existing balance while having the option to add more funds if they choose to do so. Two more important caveats is that the bank or post office must be intimated about the intention to extend in a timely manner and only one withdrawal transaction can be made in a single financial year during the five-year extension. For investors who do not need the money upon maturity, extending the tenure may be a prudent choice. The tax efficiency, liquidity and fixed interest structure strengthens this case for an extension.
CA Manas Chugh, expert in Investment and Taxation, Osgan Consultants
Closing of the PPF Account depends on the Financial Goal of the person. As the rate of interest on PPF is 7.10% which is quarterly reviewed, it allows the person to have certain allocation on Fixed Income investment. After 15 years, a person can extend for a block of 5 years with fresh deposits or without fresh deposits. The extension allows an early withdrawal option but with limits. As the lock-in period is shortened, therefore, people who have emergencies of cash should close the account, otherwise, the account allows a good rate of interest and diversification of investment.
Juzer Gabajiwala- Director, Ventura Securities
In my view, investment in Public Provident Fund Account (PPF) should be a part of your Asset Allocation. Thus, you should extend your PPF account in blocks of 5 years especially if you belong to 30% tax bracket and the current interest rate of 7.1% p.a. remains tax free.
Additionally, PPF has the backing of the central government and offers fixed returns, thus making it a risk-free investment. However, if you belong to 0% tax bracket; you may look at other fixed income products that can offer you higher than 7% p.a. returns.
Atul Sharma, Founder, Lex N Tax
If you have a PPF (Public Provident Fund) account and it has completed its lock-in period of 15 years, you have two options: close the account or extend it.
Closing the account means withdrawing the entire balance along with the accumulated interest. You can use the funds for your financial goals or invest them in other financial instruments. However, if you close the account, you will not be able to enjoy the tax benefits that come with investing in PPF.
On the other hand, you can choose to extend the PPF account after the completion of 15 years for a block of five years. During this extended period, you can continue to make contributions to your PPF account and earn tax-free interest on the balance. The maximum deposit amount into a PPF account is Rs.1.5 lakh per financial year.
So, whether you should close or extend your PPF account after 15 years depends on your financial goals and needs. If you need the money for some urgent financial requirement, you can consider closing the account. However, if you do not need the money immediately, and want to continue earning tax-free interest, you can opt to extend the account.
Maitry Shah, the founder of LakshMe, the CSR initiative of the Prudent Group
Closing and extending the PPF account depends on the performance of other investment products in your portfolio, if any. If you have other investment options that offer better returns, it may make sense to close the PPF account. On the other hand, if you want to continue with the account and are comfortable with the interest rate, you may choose to extend it. Keep in mind that the PPF offers tax benefits under Section 80C of the Income Tax Act, and the interest earned is also tax-free.
