Public Provident Fund (PPF) is India’s largest long-term savings system, with a distinct mix of security, return and tax benefits. This comprehensive guide will tell you everything about PPF investments.
What is Public Provident Fund?
Public Provident Fund (PPF) is an government funded long-term savings scheme that enables people to develop a retirement corpus and keep money. Established in 1968, PPF is arguably one of India’s most trusted investment markets and guaranteed yields and absolute capital as the Central Government funds it.
Key Features of PPF
| Feature |
Description |
| Lock-in Period |
15 years with extension option in blocks of 5 years |
| Tax Benefits |
EEE (Exempt-Exempt-Exempt) tax status |
| Interest Rate |
Government-declared rate, compounded annually (currently 7.1% p.a.) |
| Investment Limits |
Minimum ₹500 to Maximum ₹150,000 per year |
| Account Opening |
Available at banks, post offices, and online |
Comprehensive PPF Tax Benefits
- Investment Phase (E):
- Investment up to ₹150,000 qualifies for tax deduction under Section 80C
- Reduces your taxable income directly
- Beneficial for individuals in higher tax brackets
- Interest Earned (E):
- All interest earned is completely tax-free
- No TDS applicable on interest earnings
- Interest rates are typically higher than savings accounts
- Maturity Amount (E):
- Entire maturity amount is tax-exempt
- No capital gains tax applicable
- Wealth tax exemption on the accumulated amount
Investment Rules and Guidelines
1. Investment Flexibility
PPF offers flexible investment options:
- Frequency: Invest monthly or annually
- Amount Variation: Can vary investment amount each year
- Maximum Limit: ₹150,000 per financial year
- Minimum Requirement: At least ₹500 per financial year
2. Account Operation
Important operational aspects:
- Only one PPF account per person (except for guardian accounts)
- Maximum of 12 deposits allowed in a financial year
- Deposits can be made in multiples of ₹50
- Interest calculated on minimum balance between 5th and last day of each month
Loan and Withdrawal Facilities
| Facility |
Available From |
Maximum Limit |
Terms |
| Loan Facility |
3rd to 6th year |
25% of balance at end of 2nd year |
Interest rate: 1% above PPF rate |
| Partial Withdrawal |
After 7th year |
50% of balance at end of 4th year |
One withdrawal per year |
| Premature Closure |
After 5 years |
Full amount |
Only in specific circumstances |
Interest Calculation and Crediting
Key Points About Interest:
- Calculation Basis: Interest is calculated on the minimum balance between 5th and last day of each month
- Compounding: Interest is compounded annually
- Crediting: Interest is credited at the end of each financial year
- Rate Review: Government reviews and adjusts interest rates quarterly
Account Maturity and Extension
At Maturity (After 15 Years):
- Extension Options:
- Can extend in blocks of 5 years
- Unlimited number of extensions possible
- Extension possible with or without further deposits
- Without Extension:
- Account can be closed
- Entire amount can be withdrawn
- No tax implications on withdrawal
Nomination and Legal Aspects
- Nomination Facility: Available for easy transmission of funds
- Legal Protection: Amount in PPF account is protected from attachment under court orders
- Minor Accounts: Can be opened by guardian for minors
- Joint Operation: Not permitted in PPF accounts
PPF vs Other Investment Options
| Feature |
PPF |
Bank FD |
Mutual Funds |
| Safety |
Government Backed |
Bank Dependent |
Market Linked |
| Returns |
7.1% (Fixed) |
5-6% (Variable) |
10-12% (Market Dependent) |
| Lock-in |
15 Years |
Flexible |
Varies by Type |
| Tax Benefits |
EEE |
Taxable |
Varies by Type |
PPF Investment Strategies
1. Regular Investment Strategy
Best suited for salaried individuals:
- Monthly investments to average out interest calculations
- Automatic deduction facility for consistency
- Investment before 5th of each month for maximum interest
2. Lump Sum Strategy
Ideal for self-employed or business persons:
- Single annual investment at start of financial year
- Maximizes interest earning period
- Better for tax planning
3. Maximum Benefit Strategy
For optimizing returns:
- Invest maximum allowed amount (₹150,000)
- Deposit before 5th of April each year
- Consider extending account after maturity
Common Questions and Misconceptions
1. Can I open multiple PPF accounts?
No, one could only have one PPF account (even as minor guardian).
2. What happens if I miss a year's deposit?
The account is inactivated but will be activated at a penalty. 500 deposit you should deposit minimum yearly to keep the account running.
3. Can I close my PPF account prematurely?
Preschool closure can be accessed only in certain circumstances such as hospital or college, and it can also be done over 5 years.
4. How is PPF interest calculated?
Interest is measured on the minimum balance between 5th and last day of every month and combined each year.
Tips for Maximizing PPF Returns
- Timing of Deposits:
- Invest before 5th of the month to earn interest for that month
- Consider investing the full amount at the start of the financial year
- Amount Optimization:
- Invest the maximum allowed amount if possible
- Maintain consistency in investments
- Extension Strategy:
- Consider extending the account after maturity
- Continue investments during extension period
- Tax Planning:
- Coordinate with other 80C investments
- Plan investments at the start of the financial year