The Public Provident Fund (PPF) is a government-backed, long-term savings scheme that offers safety, tax benefits, and attractive returns. It was introduced by the National Savings Institute of the Ministry of Finance in 1968 with the objective of providing retirement security to self-employed individuals and workers in the unorganized sector.
PPF is a sovereign guaranteed scheme, meaning your investment is fully backed by the Government of India, making it one of the safest investment options available.
PPF enjoys EEE (Exempt-Exempt-Exempt) tax status - meaning the investment amount, the interest earned, and the maturity proceeds are all tax-free.
PPF offers attractive interest rates compared to other government-backed schemes. The interest rate is revised quarterly based on government bond yields.
You can open a PPF account at any authorized bank (like SBI, ICICI, HDFC, etc.) or post office. You need to submit the account opening form, KYC documents, and make the initial deposit.
You can invest a minimum of ₹500 and a maximum of ₹1,50,000 per financial year. The investment can be made in a lump sum or in installments (up to 12 in a year).
Interest is calculated on the lowest balance between the 5th and the last day of each month. It is compounded annually and credited at the end of each financial year.
PPF has a mandatory lock-in period of 15 years. After the 15-year period, you can either withdraw the entire amount or extend the account in blocks of 5 years.
At maturity, you can withdraw the entire corpus tax-free. Alternatively, you can extend the account for any number of 5-year blocks with or without making further contributions.
The interest in PPF is calculated using the following formula:
Interest = (Lowest balance between 5th and last day of the month) × (Interest Rate) ÷ 12
For example, if you have ₹1,00,000 as the lowest balance in a month and the interest rate is 7.1%, the interest for that month would be:
Interest = ₹1,00,000 × 7.1% ÷ 12 = ₹592 (approx.)
PPF has a mandatory lock-in period of 15 years. This ensures long-term commitment to savings and wealth creation.
Current PPF interest rate is 7.1% p.a., compounded annually. It's revised quarterly based on government securities yields.
Minimum investment of ₹500 and maximum of ₹1,50,000 per financial year. Can be deposited in lump sum or up to 12 installments.
EEE tax status - investment, interest earned, and maturity amount are all tax-exempt, making it one of the most tax-efficient investments.
Partial withdrawals allowed from the 7th financial year. The amount cannot exceed 50% of the balance at the end of the 4th preceding year.
Loan against PPF available from 3rd to 6th financial year, up to 25% of the balance at the end of the 2nd preceding year.
After 15 years, you can extend the account in blocks of 5 years with or without further contributions.
PPF account balance is protected from attachment under court decrees or orders for any debt or liability.
Investments in PPF qualify for deduction under Section 80C of the Income Tax Act, 1961. You can claim a deduction of up to ₹1,50,000 from your taxable income, which is the maximum investment limit in PPF per financial year.
| Income Tax Slab | Tax Savings on ₹1,50,000 investment |
|---|---|
| 5% | ₹7,500 |
| 20% | ₹30,000 |
| 30% | ₹45,000 |
PPF enjoys the Exempt-Exempt-Exempt (EEE) tax status, which means:
If you invest ₹1,50,000 annually for 15 years (total investment of ₹22.5 lakhs) and earn approximately ₹19.2 lakhs as interest, the entire maturity amount of around ₹41.7 lakhs is completely tax-free.
| Feature | PPF | Fixed Deposit | ELSS Mutual Funds | NPS |
|---|---|---|---|---|
| Returns | 7.1% p.a. (current) | 5-7% p.a. | 10-15% p.a. (potential) | 8-12% p.a. (historical) |
| Risk Level | Very Low (Govt. backed) | Very Low | Moderate to High | Low to Moderate |
| Lock-in Period | 15 years | Variable (7 days to 10 years) | 3 years | Until retirement age |
| Tax Benefits | EEE (fully tax-exempt) | Only Tax-Saver FD (80C) | 80C for investment; LTCG above ₹1 lakh taxed at 10% | 80C for investment; partially taxable on withdrawal |
| Liquidity | Partial withdrawal from 7th year | Premature withdrawal with penalty | After 3 years | Very Low (only 20% lump sum at retirement) |
| Investment Limit | ₹500 - ₹1,50,000 p.a. | No upper limit | No upper limit (80C benefit up to ₹1.5 lakh) | Up to 10% of salary (additional tax benefit up to ₹50,000) |
| Loan Facility | Available (3rd to 6th year) | Available against FD | Not available | Not available |
| Best For | Long-term tax-free savings | Capital preservation, assured returns | Tax-saving with higher return potential | Retirement planning |
Since PPF interest is calculated on the lowest balance between the 5th and last day of the month, deposit your money before the 5th of the month to earn interest for that month.
If you plan to invest ₹1,50,000 in a financial year, consider depositing it as a lump sum before April 5th to earn interest for all 12 months, maximizing your returns.
Since each individual can invest up to ₹1,50,000 per year in PPF, consider opening accounts for family members to maximize tax benefits and wealth creation.
A family of four can potentially invest up to ₹6,00,000 per year in PPF (₹1,50,000 x 4), claiming Section 80C benefits on the entire amount and creating substantial tax-free wealth over 15 years.
Create a PPF ladder by opening new accounts in different years to overcome the liquidity constraint of the 15-year lock-in period.
Open a PPF account every 3-5 years. When the first account matures after 15 years, you'll have a new account maturing every 3-5 years thereafter, providing periodic access to your investments.
After the initial 15-year period, you can extend your PPF account in blocks of 5 years with or without further contributions.
If you don't need the funds immediately after 15 years, extend the account without making further deposits. Your existing corpus will continue to earn tax-free compound interest, substantially increasing your wealth.