The Public Provident Fund is a savings scheme run by the Government of India, opened at a post office or an authorised bank, with a 15 year term. It is the closest thing an Indian saver has to a risk-free long-term instrument: the returns are declared by the government rather than set by a market, and the balance is backed by a sovereign guarantee.
It is deliberately illiquid. That is a weakness if you need the money and a strength if your problem is that you keep spending it.
The rules that define the account
- Deposit limits. A minimum of Rs 500 and a maximum of Rs 1.5 lakh in a financial year, across all PPF accounts you hold. You can pay it in one go or in instalments.
- One account per person. You may also open one on behalf of a minor child, but the Rs 1.5 lakh ceiling is combined, not doubled.
- Term. 15 financial years, counted from the end of the year in which you open it, which is why the account effectively runs a few months past 15 calendar years.
- Extension. After maturity you can extend in blocks of 5 years, with or without fresh contributions.
- Interest rate. Set by the Ministry of Finance each quarter and compounded annually. It has been in the region of 7.1% in recent years, but it is reviewed quarterly and has been both higher and lower in the past. Check the current notified rate before you plan around a number.
Why the deposit date matters
Interest is calculated on the lowest balance between the 5th and the last day of each month. Deposit on the 6th and that month's contribution earns nothing for the month.
Paying your annual Rs 1.5 lakh before the 5th of April, rather than in March of the following year, earns a full year of extra interest on that contribution. Over a 15 year account, that habit alone is worth a meaningful sum for zero extra money invested.
A worked example
Suppose you deposit Rs 1.5 lakh at the start of every financial year for 15 years, and the rate averages 7.1%.
You will have contributed Rs 22.5 lakh. The maturity value works out to roughly Rs 40 lakh, meaning about Rs 17.5 lakh is interest, and none of it is taxed. Halve the contribution to Rs 75,000 a year and the corpus lands near Rs 20 lakh on Rs 11.25 lakh invested.
Because the rate is reset quarterly, treat these figures as illustrations rather than promises. Run your own numbers in the PPF calculator.
The EEE tax treatment
PPF sits in the small group of instruments taxed at Exempt-Exempt-Exempt:
- Exempt on the way in: contributions count toward the Section 80C deduction, subject to the overall Rs 1.5 lakh cap shared with EPF, ELSS, life insurance premiums and the rest.
- Exempt while growing: the annual interest is not taxable and does not need to be declared as income.
- Exempt on the way out: the maturity amount is received tax-free.
One important caveat: the 80C deduction is available under the old tax regime. If you have opted for the new regime you still get tax-free interest and tax-free maturity, but not the deduction on the way in. That changes the arithmetic of whether PPF is the right 80C vehicle for you, so compare both regimes before deciding.
Getting money out early
You cannot simply close a PPF account when you feel like it, but there are three routes:
- Partial withdrawal is allowed from the 7th financial year, capped at 50% of the balance at the end of the 4th preceding year or the previous year, whichever is lower.
- Loan against the balance is available between roughly the 3rd and 6th years, at a small spread over the PPF rate, repayable within a defined window.
- Premature closure is permitted after 5 years only for specified reasons such as serious illness or higher education, and it carries an interest penalty.
Where PPF fits, and where it does not
PPF is excellent for the safe, long-horizon part of a portfolio: retirement money, a child's education fund, the ballast that lets you hold equity through a bad year without panicking.
It is a poor fit for an emergency fund, because the money is not reachable. And relying on it alone for a 25 year goal is risky in a different way: a roughly 7% return is only a couple of points above typical inflation, so real growth is slow. Most people are better served pairing PPF with equity through ELSS or an index SIP. See how it compares against fixed deposits and pension products in our PPF vs FD vs NPS guide.