Public Provident Fund (PPF) is a popular long term investment plan which is backed by the Central Government of India. The PPF plan is a safe and secure investment plan along with attractive interest rate and returns that are completely exempted from Tax. The Investors can invest a minimum of Rs. 500 to a maximum Rs. 1,50,000 in a financial year and can get the facilities such as loan, withdrawal and extension of the account. The interest rate on the PPF is decided by the government and every year the new PPF interest rate is introduced with the beginning on new Financial Year.
For the new financial year Apr 2016 – Mar 2017, the Interest rate on small savings schemes, including Public Provident Fund, Kisan Vikas Patra (KVP) and senior citizen deposits, will be cut by up to 1.3 per cent from 1st April 2016 as the government makes a move towards quarterly alignment of the rates with the market. The revised Interest rate on Public Provident Fund (PPF) will be 8.1 per cent for the period 1 April 2016 to 30 June 2016. The PPF interest rate is down from 8.7 per cent, which is previous financial year’s interest rate. Till the last financial year the interest rates were set for the whole year. However, unlike previous years when the interest rates were set for the full year, the government has decided that from this year the interest rate will be revised every quarter, based on last 3-month yields on Government-Securities or G-Sec. The interest rate for every quarter would be declared on the 15th day of the preceding month. Interest rate for July-September quarter will be announced on 15 June 2016.
This year the government has also permitted the premature closure of PPF accounts but only “in genuine cases”, like if it is a case of serious ailment or may be higher education of children. As said by Minister of Finance, “This shall be permitted with a penalty of 1 per cent reduction in interest payable on the complete deposit and applicable only for the accounts having completed five years from the date of opening.”
Well, it was necessary for the Government to reduce on the Interest Rate as this will enable the banks to apparently reduce their deposit rates and extend the loan and credit to public and the borrowers at lower rates.