What is PPF? Complete Guide to Public Provident Fund in India
The Public Provident Fund (PPF) has been India's most trusted savings scheme for decades. With government backing, tax-free returns, and the power of compounding over 15 years, PPF remains a cornerstone of conservative financial planning. Let's understand how it works and how to make the most of it.
What is PPF?
PPF is a long-term savings scheme backed by the Government of India. Introduced in 1968, it encourages small savings while providing guaranteed, risk-free returns and significant tax benefits.
Current PPF Interest Rate (2025-26)
The PPF interest rate for Q4 FY 2025-26 (January-March 2026) is 7.1% per annum, compounded annually. This rate has remained unchanged since April 2020 and is reviewed quarterly by the government.
Key Features of PPF
| Feature | Details |
|---|---|
| Minimum Investment | Rs 500 per year |
| Maximum Investment | Rs 1.5 lakh per year |
| Tenure | 15 years (extendable in 5-year blocks) |
| Interest Rate | 7.1% p.a. (compounded annually) |
| Tax Status | EEE (Exempt-Exempt-Exempt) |
| Risk Level | Zero (Government guaranteed) |
Who Can Open a PPF Account?
- Indian residents only - NRIs cannot open new PPF accounts
- One account per person - Joint accounts are not allowed
- Minors - Parents/guardians can open accounts for minors
- Existing NRI accounts - If a resident becomes an NRI after opening, the account can continue until maturity
Where to Open PPF Account
You can open a PPF account at:
- Any Post Office
- Nationalized banks (SBI, PNB, Bank of Baroda, etc.)
- Select private banks (ICICI Bank, HDFC Bank, Axis Bank)
Most banks now allow online PPF account opening and management.
Tax Benefits: The EEE Advantage
PPF enjoys the prestigious EEE (Exempt-Exempt-Exempt) tax status under the old tax regime:
- Exempt on Investment - Contributions up to Rs 1.5 lakh qualify for Section 80C deduction
- Exempt on Interest - Interest earned is completely tax-free
- Exempt on Maturity - The entire maturity amount is tax-free
Note: These tax benefits are available only under the old tax regime. The new tax regime doesn't offer Section 80C deductions.
How PPF Interest is Calculated
Understanding the interest calculation helps you maximize returns:
- Interest is compounded annually but calculated monthly
- Calculation is based on the lowest balance between the 5th and last day of each month
- Interest is credited to your account on 31st March every year
Pro Tip: To maximize interest, deposit your PPF contribution before the 5th of each month. If you invest on the 6th, you lose interest for that entire month!
PPF Maturity and Extension
After 15 Years
At maturity, you have three options:
- Full Withdrawal - Close the account and withdraw the entire amount (tax-free)
- Extension with Contribution - Extend in 5-year blocks with continued deposits
- Extension without Contribution - Keep the account active without new deposits; existing balance continues to earn interest
PPF Withdrawal Rules
Partial Withdrawal
Partial withdrawals are allowed from the 7th financial year onwards:
- Maximum withdrawal - 50% of the balance at the end of the 4th preceding year OR the balance at the end of the immediately preceding year, whichever is lower
- Frequency - One withdrawal per financial year
Premature Closure
Allowed only after 5 years for specific reasons:
- Serious illness of account holder, spouse, children, or parents
- Higher education of account holder or children
- Change in residency status
Premature closure attracts a 1% interest penalty.
Loan Against PPF
You can take a loan against your PPF balance from the 3rd to the 6th financial year:
- Maximum loan - 25% of the balance at the end of the 2nd preceding year
- Interest rate - PPF rate + 1% (currently 8.1%)
- Repayment - Within 36 months
- Second loan - Available only after fully repaying the first loan
PPF Returns Calculator
Example: If you invest Rs 1,50,000 annually for 15 years at 7.1% interest:
| Parameter | Amount |
|---|---|
| Total Investment | Rs 22,50,000 |
| Interest Earned | Rs 18,18,209 |
| Maturity Amount | Rs 40,68,209 |
That's Rs 18+ lakh in tax-free interest earnings!
PPF vs Other Fixed Income Options
| Option | Interest Rate | Lock-in | Tax on Interest |
|---|---|---|---|
| PPF | 7.1% | 15 years | Tax-free |
| Bank FD | 6-7% | Flexible | Taxable |
| NSC | 7.7% | 5 years | Taxable |
| SSY (Girls) | 8.2% | 21 years | Tax-free |
PPF Protection from Legal Claims
An important but lesser-known feature: PPF balance is protected from attachment under any court order or decree. This makes it an excellent tool for safeguarding a portion of your savings.
Who Should Invest in PPF?
PPF is ideal for:
- Conservative investors - Those who want guaranteed, risk-free returns
- Tax planners - Those in higher tax brackets seeking Section 80C benefits
- Long-term goals - Retirement planning, children's future
- Debt portfolio allocation - As part of a balanced investment strategy
PPF Limitations
- Long lock-in - 15 years is a significant commitment
- Low liquidity - Limited withdrawal options
- Investment cap - Maximum Rs 1.5 lakh per year limits growth potential
- Interest rate risk - Rates can be revised quarterly
- Not for new regime users - No tax benefit under new tax regime
Need Liquidity? Consider Alternatives
PPF's long lock-in can be challenging when you need funds. While PPF loans are an option, they're limited in amount. If you have mutual fund investments, DhanLAP offers a better solution.
Our Loan Against Mutual Funds (LAMF) provides:
- Higher loan amounts - Based on your portfolio value
- Quick disbursement - Often same-day
- Flexible repayment - No fixed EMI required
- Investments keep growing - No need to redeem
Final Thoughts
PPF remains one of the best risk-free investment options in India. The combination of government guarantee, competitive interest rates, and tax-free returns makes it a must-have in any conservative portfolio. Start early, invest consistently before the 5th of each month, and let the power of compounding work its magic over 15+ years.
For those under the old tax regime, maxing out your PPF contribution at Rs 1.5 lakh annually should be a priority in your financial plan.
