PPF Lock-In Period Last Updated : 15 Oct 2019

Public Provident Fund comes with a specified lock-in-period which means the account holders can’t withdraw fund from their account before the completion of this period. Even though its currently 6 years, its is expected to go up by 5 to 20 years.

Two more years are expected to be added to the lock-in period for PPF as the government seeks to increase the same for tenures that stretch to twenty years. Individuals who invest in PPF can withdraw their money after eight years. Currently, the lock-in period lasts for six years. The tenure of PPF is also expected to be increased by 5 years to 20 years.

The customer has the option to choose their saving period and the term can be either 15 years or 20 years. The government expects to bring in an increasing number of people by increasing the rate of interest for tenures that extend to 20 years. In case the customer wishes to invest in PPF for 20 years, the tax benefits that follow are expected to be higher. The government is contemplating this decision so that it can make sure that infrastructure funding can have a steady source.

In the meantime, the Reserve Bank of India has revealed that fixed deposits with high values and resilience will start earning higher rates of interest in the near future. People who deposit money and store it with banks generate differential interest rates depending upon the amount of money they have deposited – whether it is less than or more than Rs. 1 crore. The rate of interest tends to be more if the period is longer. Moreover, deposits under Rs. 1 crore may be taken out prematurely, causing a mismatch between the assets and liabilities.

To right this issue between the interest paid to depositors and that earned on loans, the Reserve Bank of India has enabled banks to provide customers with deposit schemes that extend to Rs. 1 crore. This money from this scheme cannot be withdrawn prematurely. Non-callable deposits as they are also called, can charge varying PPF interest rates, thus making possible the potential of retail depositors. These retail depositors usually choose such deposits as they can earn relatively better interest rates in comparison with deposits that can be withdrawn prematurely, also called callable deposits.

At the moment, every deposit that is made by Hindu Undivided Families and individuals can be prematurely withdrawn provided that the amount is under Rs. 1 crore, causing mismatches between assets and liabilities in banks.

The latest decision of the Reserve Bank of India is among the biggest steps towards rules associated with interest rates and their link to deposits. This was decided following the central bank’s decision to permit banks to provide customers with floating rates on deposits 10 years ago. Detailed guidelines are expected to be issued by the central bank in the near future. The management of assets and liabilities becomes difficult for banks if withdrawals are made prematurely.

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