Should the 15-year lock-in period for PPF be removed ?

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Public Provident Fund (PPF) is considered to be one of the safest investment. It is a government backed, zero-default risk saving scheme. You invest for 15 years and at the end of 15 years you accumulate a corpus and earn compounding interest on your deposit. SBI’s Ecowrap report, led by its Chief Economic Advisor Dr Soumya Kanti Ghosh, recommends that the maturity limit of public provident funds should be reduced. At present, withdrawal of money from PPF is not allowed before maturity. One can partially withdraw after a period of 7 years but it comes with many conditions like for children’s education or marriage, for any medical expenses or buying a house.

SBI Ecowrap’s three recommendations

Public Provident Fund (PPF) maturity deadline should be reduced

Return on Senior Citizen Savings Scheme should be made tax-free

Interest on deposit schemes should be linked to age-wise structure

There is a lack of a social security scheme in India, due to which people trust these schemes of the government and also consider them to be a safer avenues.

What if 15-year maturity of PPF is removed ?

Manish, 41, opened a Public Provident Fund (PPF) account at the age of 30 at the behest of his father. His PPF will now mature in 4 years. But 11 years were not easy, when Manish was purchasing his first car he looked at the PPF corpus and thought this money would have helped him, then when he lost his job he had to discontinue his contribution but couldn’t opt out of the scheme. Manish wanted to withdraw the PPF corpus but could not do it due to the lock-in. Manish’s father considers this 15-year lock-in a blessing in disguise. If not for this lock-in, Manish wouldn’t  have completed the PPF tenure.

Personal finance expert Pratibha Girish believes that the discipline of PPF does not allow people to withdraw their investment and they are able to save for retirement. But the patience of 15 years is a little difficult these days, according to Dr Soumya Kanti Ghosh, more people will subscribe to the scheme if the maturity is reduced. Time limit should be reduced but at the same time people must be discouraged from pre-mature withdrawals.

Senior Citizen must get tax-free income

By 2041, the number of senior citizens in the country will be 15.9%. According to an estimate, the number of people above 60 years was 10.4 crore in 2011, which will increase to 23.9 crore by 2041. For senior citizens, schemes like Senior Citizen Saving Scheme should become tax-free. At present, on maturity the earning of SCSS is fully taxable. The outstanding amount under these schemes in February 2020 was Rs 73,725 crore. If government gives a tax rebate on this, it will have a nominal impact on the government’s exchequer. Experts believe that senior citizens will get some relief from the falling interest rates with this move.

Should interest rate be fixed according to age?

The SBI EcoWrap report has also suggested that interest should be given in small savings scheme according to age. Pratibha Girish does not agree. She says that demographically, citizens who require preferential rate are already getting it either through preferential schemes or special senior citizen rates.

In a country like India, where people start investing late, there should be no clipping from investing if they tie it with the age limit then there is a possibility that people who are late starters may as well run away.