PUBLIC PROVIDENT FUND
PPF: the tax-free story your bank skips
80C deduction in. Tax-free interest. Tax-free maturity. But after 15 years of 6% inflation, your ₹43L buys less than you think. See the real number. Guide: PPF vs ELSS for 80C
PPF Inputs
Reality Check
Results
After % inflation: —
PPF Growth over Time
What is PPF?
Public Provident Fund (PPF) is a government-backed, 15-year savings scheme that offers a unique triple tax benefit: contribution is deductible under Section 80C, interest earned is tax-free, and the maturity amount is exempt. This EEE structure makes PPF one of the most tax-efficient instruments in India.
PPF is designed for conservative, long-term investors who want guaranteed, inflation-adjacent returns without credit risk. However, the long lock-in and moderate rate mean that real purchasing-power growth (after CPI inflation) is modest — often 1–2% p.a. real.
PPF Benefits — and the fine print
- Zero default risk: Sovereign guarantee — the safest debt instrument available in India.
- 80C deduction: Up to ₹1.5L per year reduces your taxable income. For a 30% bracket investor, this is a ₹46,800 annual saving.
- Compounding interest: Interest is calculated monthly and credited annually, creating meaningful compounding over 15+ years.
- Loan & partial withdrawal: Loans from year 3, partial withdrawals from year 7 — making PPF more liquid than it appears.
- Extension beyond 15 years: Extending without deposits is often the most efficient strategy — money keeps growing tax-free with no additional cash outflow.
- Inflation caveat: At 7.1% nominal and 6% CPI, the real return is only ~1.1% p.a. — enough for wealth preservation, not aggressive wealth creation.
How PPF Works
- Open an account — at any nationalised bank, SBI, or post office. Only one account per person allowed.
- Deposit annually — between ₹500 and ₹1.5L per financial year. Depositing before April 5 each year maximises that year's interest.
- Interest is calculated monthly — on the minimum balance between the 5th and last day of each month, then credited annually on March 31.
- 15-year lock-in — no full withdrawal before maturity. Partial withdrawals and loans are permitted under specific conditions.
- Extend in 5-year blocks — after maturity, you can extend with or without contributions. Extension without deposits is the pure compounding strategy.
FAQ
PPF — Questions worth asking
Does PPF actually beat inflation?
At the current rate of 7.1% and historical CPI of 5–6%, PPF delivers a real return of roughly 1–2% p.a. That preserves purchasing power but doesn't significantly grow it. Use the calculator above with your inflation assumption to see exactly what your maturity value is worth in today's rupees.
PPF vs ELSS — which gives better returns?
ELSS (equity mutual funds) have historically delivered 12–15% CAGR, well above PPF's 7.1%. But ELSS carries market risk and gains above ₹1L are taxed at 10%. PPF is for the risk-averse, guaranteed-return portion of your 80C allocation. A balanced approach: use both.
What is the best PPF deposit strategy?
Deposit ₹1.5L before April 5 each year. Since PPF calculates monthly interest on the minimum balance between the 5th and last day of the month, depositing before the 5th of April ensures you earn interest for the entire first month — effectively gaining one full month's extra compounding per year.
Should I extend PPF after 15 years?
Almost always yes. Extending without fresh deposits means your entire corpus keeps compounding at the prevailing rate, tax-free, with no new cash locked in. Every 5-year extension adds roughly 40–42% to your existing balance (at 7.1%). The extension-without-contribution strategy is one of the most underrated moves in personal finance.
Is PPF deposit limit ₹1.5L per account or per family?
₹1.5L is per individual per financial year. A parent can open a PPF account on behalf of a minor child, but the combined deposits across the parent's own account and the minor's account cannot exceed ₹1.5L per year (under the same PAN).