PPF Loan Vs Partial Withdrawal: Public Provident Fund (PPF) is an excellent long-term investment, which gives good returns and tax exemption along with security. But sometimes in life, money is suddenly needed. In such a situation, if your money is invested in PPF, then you have two options - taking a loan on PPF or withdrawing some money from it (Partial Withdrawal). But the question is, which option is better for you? Will it be right to take a loan or withdraw money? Both have their own rules, advantages, and disadvantages. Let us understand in simple language today when you should take a loan when you should withdraw money, and what effect it will have on your pocket and investment.

Loan on PPF: What are the rules?

1. When can you take it?

You can take a loan only from the third financial year of opening a PPF account to the end of the sixth financial year. That is, 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.

2. How much loan will you get?

You can get a maximum loan of 25% of the balance in your account at the end of the second financial year immediately preceding the financial year in which you are applying for the loan.

3. How much interest will be charged?

The interest rate on PPF loan is only 1% higher than the current interest rate on PPF. (Earlier it was 2% higher, but now the rule has changed). If 7.1% interest is being received on PPF, then 8.1% interest will be charged on the loan.

4. How to repay?

You have to repay the principal amount of the loan within 36 months (3 years). You can pay the interest in two monthly installments after paying the principal. If you are unable to repay the principal in 36 months, the interest rate will be 6% higher instead of 1% (ie 7.1% + 6% = 13.1%).

Partial Withdrawal from PPF: What are the rules?

1. When can you withdraw?

You can start withdrawing money from the seventh financial year of opening a PPF account. That is, if the account is opened in FY 2018-19, then you can withdraw money from FY 2025-26. Money can be withdrawn only once a year.

2. How much can you withdraw?

You can withdraw up to 50% of the balance at the end of the financial year immediately preceding the one in which you are withdrawing money or at the end of the fourth financial year immediately preceding it, whichever is less.

3. Do you have to pay back the money?

No! This is not a loan, so the withdrawn money does not need to be deposited back.

4. Is there any interest charged?

No, because it is your own money that you are withdrawing.

Loan vs Withdrawal: Impact on your pocket (Calculation)

Loan:
You have to pay interest on taking a loan. Even though the interest rate is low (only 1% higher), it is extra money going out of your pocket. However, interest continues to accrue on the remaining amount deposited in your PPF account. If you repay the loan on time, your original investment is not affected much.

Withdrawal:
You do not have to pay any interest on withdrawing money, but your PPF balance gets reduced. This means that in future you will get less compounding interest on that reduced balance. In the long run, this can have a big impact on your final corpus (total deposit amount).

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