The Complete Guide to Public Provident Fund (PPF)

Risk-free returns, tax-free interest, and government sovereign guarantee. No wonder PPF remains the king of debt investments in India.

By Finance Editor•Updated: 27 January 2024

In a world of volatile stock markets and risky mutual funds, the Public Provident Fund (PPF) stands tall as a pillar of stability. Launched in 1968, it aims to mobilize small savings and provide a retirement security net for self-employed individuals and workers from unorganized sectors.

1. The "EEE" Advantage

PPF is one of the few instruments in India that falls under the Exempt-Exempt-Exempt (EEE) tax category.

  • Exempt at Investment: Your investment up to ₹1.5 Lakhs/year is deductible u/s 80C.
  • Exempt at Accumulation: The interest earned every year is completely tax-free.
  • Exempt at Withdrawal: The final maturity amount is also tax-free.

Compare this to Fixed Deposits, where interest is fully taxable, and you realized why PPF is superior for high-tax-bracket individuals.

2. Key Rules & Limits (2024)

Interest Rate7.1% per annum (Subject to quarterly change)
Min Investment₹500 per financial year
Max Investment₹1.5 Lakhs per financial year
Tenure15 Years (Can be extended in blocks of 5 years)

3. The 15-Year Lock-in Myth

Many people avoid PPF fearing the 15-year lock-in. While true, usage of funds is allowed earlier:

  • Loan Facility: From 3rd to 6th year.
  • Partial Withdrawal: From 7th year onwards (once per year).
  • Premature Closure: Allowed after 5 years only in extreme cases (medical emergency or higher education), with a 1% interest penalty.

4. Maximizing Returns (The 5th of Month Rule)

Interest is calculated on the lowest balance between the 5th and the end of the month.

Impact: If you deposit ₹1.5 Lakhs on April 6th, you lose interest for the entire month of April! Always deposit on or before April 5th to earn interest for the full year.

Conclusion

PPF is not for creating massive wealth quickly. It is for capital protection. It should form the "Safe Debt" part of your portfolio, ideally 20-30%, balancing the risk of your Equity Mutual Fund investments.

Project your tax-free wealth with the PPF Calculator.

Frequently Asked Questions

What happens if I forget to deposit in PPF for a year?

Your account becomes 'inactive'. To revive it, you need to pay a penalty of ₹50 per year of default + minimum subscription of ₹500 for each defaulted year.

Can I open PPF in the name of my minor child?

Yes, you can open a PPF account for a minor. However, the combined limit for you and your child remains ₹1.5 Lakhs per financial year.

Can I have two PPF accounts?

No. An individual can hold only ONE PPF account in their name across all banks and post offices in India.