WITH an increase in interest rate on public provident fund (PPF) deposits to 8.6 per cent and enhanced limit of up to Rs 1,00,000 for availing tax benefits, PPF deposits looks like a good long-term investment option. These deposits are also eligible for deduction under Section 80C of the Income Tax Act.

Maturity period: In long term planning, financial advisers recommend PPF as one of the means to build wealth. The maturity period is 15 years from the close of the financial year in which the initial subscription was made. At the end of this period, you get the entire amount (principal and interest earned). The maturity date depends on the financial year, and not on the date of its opening. An individual is allowed to open only one PPF account.

PPF gives best post-tax returns. Individuals falling in the higher tax brackets should make use of this investment option. The return is guaranteed and with no risk involved.

This tool allows you flexibility to invest, depending on your financial position. Minimum investment required every year is Rs 500. You can vary the deposit amount as per your convenience.

How to open PPF account?

You can open PPF account in a bank or a post office near you. Opening the account involves filling up of application form and the tendering of cash / cheque for initial subscription.

Along with the form, you will have to submit documents such as passport size photograph, PAN and address proof. When you open the account, you will be given a passbook. The passbook needs to be updated for every investment you make and for the interest you receive. You can open PPF account for minors too.

Withdrawal clause: Though the PPF deposits have a lock-in period of 15 years (which means it can't be closed before 15 years), one can make partial withdrawal in seventh year of the account. You can make only one withdrawal every year.
The amount of withdrawal is limited to 50 per cent of the balance in your account year.

Extension of PPF deposits: Even after expiry of 15 years, the PPF account can be extended for one or more blocks of five years each. You will still earn interest on your investment and avail the tax deduction.

To keep your PPF account active, you need to make at least a minimum deposit every year, or else, your account will become inactive and you become ineligible for loan as well as partial withdrawal. However, you can revive the discontinued PPF account after pay ing the prescribed default fee of Rs 50 per year along with subscription arrears, minimum of Rs 500 for each such year. Even if the account is discontinued, the repayment of subscriptions along with interest would only be credited after the lock-in period of 15 years.

"Preclosure of PPF account is allowed only in case of death of account holder.
Account is transferable from one post office to another, from post office to a bank, and from bank to a post office," said an official of State Bank of India.

In case of preclosure, corpus is paid to the nominee.

Appointing a nominee is important, as it will prevent your legal heir from hassles later on. You can also change nominee anytime in future based on the need.