Public Provident Fund (PPF) is a great option for long term investment, which offers good returns and tax exemption along with financial security. However, sometimes the requirement of money is sudden, and you look for the options to gain liquidity. In this situation, PPF provides you with few options, including to take a loan on PPF or withdraw some money from it (Partial Withdrawal).
However, with the options, comes the confusion of choosing better. It this article, we will check which option is better: to take a loan or withdraw the money? With both the option, one have to follow certain rules, and both the options have their advantages and disadvantages.
Loan From PPF
Individuals can take a loan only from the third financial year of opening a PPF account till the end of the sixth financial year. This means that if you have opened the account in FY 2021-22, then you can apply for a loan from FY 2023-24 to FY 2026-27.
The maximum loan amount you can get is 25% of your account balance as of the end of the second financial year before the year you’re applying for the loan. The interest rate on PPF loan is only 1% higher than the current interest rate on PPF. If 7.1% interest is being given on PPF, then 8.1% will be the interest charged on the loan.
Individuals should make sure that they repay the loan principal within 36 months. Moreover, they can repay the interest in two monthly instalments after repaying the principal. Failing to repay the principal in 36 months will attract the higher interest rate.
Partial Withdrawal
Individuals can start withdrawing money from the 7th financial year of opening a PPF account. This means that if the account is opened in FY 2018-19, then they can withdraw money from FY 2025-26. However, the money can be withdrawn only once a year.
You can withdraw up to 50% of the balance from either the previous financial year or four years ago, whichever amount is lower. The major advantage of choosing the partial withdrawal option is that you need not repay the amount and therefore, no interest is levied on that.
