Why take a loan against a PPF account?
Public provident fund (PPF) account/scheme is one of the most popular saving-cum-investment products, mainly due to its advantageous combination of safety, returns, and tax savings.
Before discussing the advantages of availing loan against a PPF account let’s first dive into the importance of PUBLIC PROVIDENT FUND:-
• PPF Account is one of the best investments as it has a low-risk appetite.
• Since, it is backed by the government, the investment has zero market association. Due to this, it offers guaranteed returns to protect the investment needs of many people.
• As the returns from the PPF accounts are fixed, they are used as a diversification tool for the investor’s portfolio. Additionally, they also offer tax savings benefits.
• As the returns from the PPF accounts are fixed, they are used as a diversification tool for the investor’s portfolio. Additionally, they also offer tax savings benefits.
The summary of the above is that Public Provident Fund is a long-term investment option that offers a tempting rate of interest and returns on the amount invested. The interest earned and the returns are not taxable under Income Tax.
Loan against PPF:- As we all know PPF is a long-term investment and sometimes you might need funds to fulfill financial requirements.PPF allows you the partial withdrawals of your need funds for your needs. However, such withdrawals are allowed post completion of six years of investment into the account. If you need funds prior to the period, then you can resort to a loan against PPF.
You can get a loan against a PPF account between the third and fifth year of opening the account. This loan can be taken for up to 25% of the balance in the PPF two years before the loan application is made.
Availing of a loan from again PPF account can be advantageous in many ways. Here are some of the key benefits of doing so:-
1. No collateral or mortgage required:- You will not be required to pledge any asset in the form of collateral when taking a loan against your PPF account.
2. Repayment tenure of 36 months:- The loan can be repaired within 36 months. This timeline is calculated from the first day of the month following the month in which the loan is sanctioned. For instance, if the loan was sanctioned on 25th January 2018, then the loan tenure of 36 months starts from the first of February,2018.
3. Low-interest rates:- This is one of the most significant benefits of availing alone against a PPF account. Interest rates are far lower than those of traditional personal loans from banks.
4. Flexibility in repayment:- The repayment of the principal amount of the loan can be done either in two or more installments (on a monthly basis) or as a lump sum.
Conclusion:- A low-interest rate is one of the main highlights of a loan against the PPF account balance. It provides an easy finance facility to account holders without causing any additional interest burden.