Public Provident Fund is a great investment tool to build your retirement corpus. It is government-backed and was designed to help self-employed workers and those from the unorganised sector to start building a retirement corpus.
However, the plan had one drawback. With a maturity period of 15 long (very long) years, it did not offer premature closure facility. This deterred many from investing in a PPF plan. Hence, the government has lifted the ‘no-premature closure’ ban on the scheme to encourage investment. Though it’s good news, it comes with a lot of terms and conditions.
If you have invested in a PPF, or are planning to invest in one, then you should familiarise yourself with the terms for prematurely closing your PPF account.
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Firstly, it’s good news that you can now prematurely close your PPF account, but you can only do so if you have held the account for at least five full financial years. So before you stow away money in a PPF account, keep the five years cap in mind.
Secondly, you can prematurely close your PPF account for two reasons only.
- To pay for medical expenses if you, your spouse, or your dependent children or parents are diagnosed with a chronic illness.
- If the account holder wants money to pursue higher education.
You might frown upon the terms and conditions, but it is important to understand that the purpose of a PPF account is to encourage investment for retirement and not for emergencies. The benefit of being allowed to close your account prematurely is a luxury. Use it wisely (only if you really need to). It’s nice in a way because the closure terms ensure that the only time you can close a PPF account is when faced with an emergency.
This is rather simple. To close your PPF account all you need to do is submit a written application with a mention of the reason. Make sure your reason falls within the two stated criteria.
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Just submitting an application and stating the reason won’t be enough. You need to provide proof that your problem is legitimate and not something you have cooked up to get the money. You need to submit the following documents to prematurely close your PPF account:
- Your PPF passbook
- Letter from a recognised medical institution stating the nature of the illness and the medical treatment required, or admission acceptance letter, fee receipt etc.
It won’t be difficult to obtain these documents if your case is genuine
A charge is applicable when you close your PPF account before the maturity period. This is to discourage people from impulsively closing their accounts. When you prematurely close your PPF account you have to pay a penal charge, which is one percent less than the interest rate applicable on the opening date of the account.
PPF might block your money for a long time, but you’ll be thankful for the scheme in your retirement days. Hence, look at premature PPF closure as your last resort.
Before premature closure was permitted for a PPF account, you could make a partial withdrawal from your account after seven years. This provision stays put.
You cannot prematurely close your PPF to pay for the higher education of your spouse or dependent children. The account holder must be seeking to pursue higher education to be able to close their account prematurely.
If the account holder is a minor, the guardian can undertake closure activities on his/her behalf.
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Closing a PPF account ahead of time is a simple process and doesn’t cost much. However, make sure you keep an emergency fund going for the not-so-pleasant financial setbacks life might throw at you. This will prevent you from disturbing your PPF account.
If you are looking for investment options for a term shorter than 15 years, we suggest Mutual Funds. They have gained a reputation for giving inflation beating returns.