Public Provident Fund (PPF) is a popular investment product in India as it offers guaranteed returns and tax benefits. The money invested in PPF enjoys EEE (exempt-exempt-exempt) status, which makes money invested and eventually withdrawn free from taxes. To make it more investor-friendly, the government last year notified a few changes pertaining to withdrawal, closures, multiple deposits and loans.
Besides the numerous investment benefits PPF offers, it also enables an investor to take a loan against the existing balance during an urgent money need.
The PPF comes with a lock-in period of 15 years and you can open a PPF account by investing an amount as small as Rs. 500 and the maximum one can invest in PPF each financial year is 1.5 lakh.
Here is a lowdown on various aspects of loan against PPF so that you can make the right money move.
When Can You Take A Loan
Loan against PPF is secured in nature and can be availed from the third financial year of the account opening. The loans can be procured till the seventh year of the account opening and will have to be repaid in 36 installments.
The interest rate for loan against PPF was two percent over the interest earned on your account earlier. The government halved this interest rate to one per cent in December last year. Since the current rate of return on PPF is 7.9% per annum, loan against the account would attract an interest rate of 8.9% per annum. The interest would be applied from the first day of the month in which the loan is availed to the last day of the month in which the last instalment payment is done. The loans can be taken up till the seventh year of the account opening, and needs to be repaid within 36 months. You can avail a loan against PPF only once a year.
How Much Loan Can You Avail
The loan amount you apply for should not exceed 25 per cent of the amount that is available in your account at the end of the second year.
Should You Take A Loan Against PPF?
Taking a loan against PPF is cheaper than unsecured loans like personal loans or credit card debt. PPF offers the benefit of compounding. During the loan, your account will earn no interest. Therefore, this will slow down your compounded growth, thus impacting your overall investment. Therefore, use the PPF loan option only if necessary.
BankBazaar.com is India’s leading online marketplace for loans, credit cards, and more.