4 Reasons: Why Should You Extend PPF after its Maturity?
By Anupama Deshpande | June 19, 2019

Public Provident Fund (PPF) is a popular long term investment avenue which is backed by Government of India. Even after having a lock-in period of 15 years, major reasons behind its popularity are safety of funds, attractive interest rate and tax benefits. Any resident Indian is eligible to open a PPF Account. Investors are allowed to invest minimum Rs. 500 to maximum Rs. 1.50 lakhs in a financial year.

All the banks/ post offices offer PPF accounts at the rate fixed by Indian Government. Current PPF interest rates offered is 8% as applicable from April 1, 2019 to June 30, 2019. This rate of interest can be considered better rate than any other investment alternatives as the interest earned is fully tax free. The interest on your PPF account is compounded annually and is credited at the end of the year. However, the interest rate on PPF keep varying as declared by the finance ministry of Indian government, it may have an impact on your PPF investment.

PPF has a long tenure of 15 years and the amount can be withdrawn in full after its maturity period. There is also an annual compounding of interest so the impact of compounding becomes huge, especially in the later years of PPF tenure.

Related topic What Happens If You Deposit More Than Rs 1.50 Lakhs in PPF?

In order to earn maximum interest on your PPF Account, you should invest in your PPF account in following ways:

(1)Lump sum Investment: Rs 1.50 lakhs before 5th of April each year for 15 years without fail (OR)

(2)Investment in Instalments: Rs 12,500 per month before 5th of each month in each year (as the maximum yearly cap on PPF investment is Rs 1.50 lakhs currently, hence monthly contribution comes to Rs 12,500)

After initial lock-in period of 15 years, PPF account can be extended in block of 5 years after the maturity period. The maturity of a PPF account comes after 15 years. It is not necessary to withdraw the balance from your PPF account as soon as it matures. If you do not want to withdraw from your PPF account after its maturity, you can extend it further.

Detailed below are the 4 Reasons: Why Should You Extend PPF after its Maturity?

Initially, PPF offer lower returns, but if you are extending it for 5 more years or more, it will yield brilliant returns. The reason being compounding of interest. As the interest in PPf account is calculated on compounding balance in your PPF Account so more interest will be given when balance in your PPF account goes higher with time.

If you opt for extension of PPF account with fresh deposits, you will also get tax benefit under section 80C of the income tax act towards fresh deposits made by you maximum Rs 1.5 lakhs per year.

Related topic How to Make Online Payment to Your PPF Account?

If you have opted for extension of the account for 5 years without fresh contribution, you are free make one withdrawal in each financial year of any amount in your PPF Account. The balance in your PPF account will continue to earn interest for you. So you have the flexibility to withdraw any amount, if you extend your PPF account without fresh contribution.

Along with interest, the balance in your PPF account after 15 years will be around Rs 0.35 crore at the end of 15 years at the average interest rate taken on PPF account as over 8%. If the average rate of investment is 8% or above, you can become Crorepati in 20 to 25 years by extending your PPF Account for 5 to 10 more years after its maturity. After extending PPF after its maturity, you will get over Rs 1 crore after 5 to 10 more years i.e. after 20 to 25 years.

If you have invested in PPF account for your retirement and you have not reached your retirement age at the time of maturity of your PPF account, you should extend it instead of withdrawing fund from it until you reach 60 years of age.

The maturity of any PPF account is of 15 years. After the maturity, it can be extended for as long as the account holder wishes to continue it. Extensions can be done for in a block of 5 years at a time for indefinite period of time.