Are you looking for a long-term investment option that offers steady returns, tax benefits, and the security of a government-backed scheme? The Public Provident Fund (PPF) in India might be the perfect solution for you.
What is PPF?
The Public Provident Fund (PPF) is a popular savings-cum-tax-saving scheme introduced by the Government of India in 1968.
It aims to encourage small savings and offer a secure, long-term retirement planning option for Indian citizens.
PPF is an EEE(Exempt-Exempt-Exempt) product.
Differences between PPF, EPF, VPF, GPF based on below parameters –
Eligibility, Interest Rate, Tax Benefits, Investment Limits, Lock-in Period, Purpose
| Feature | PPF | EPF | VPF | GPF |
|---|---|---|---|---|
| Eligibility | All Indian citizens | Salaried | Salaried (with EPF) | Government Employees |
| Interest Rate | Quarterly review | Annual review | Same as EPF | Quarterly review |
| Tax Benefits | EEE (Exempt-Exempt-Exempt) | EEE | EEE | EEE |
| Lock-in | 15 years | Until retirement | Until retirement | Until retirement |
Key Features of PPF
Following are key features of PPF in short summary, I will go through each of them in details below.
Eligibility: Open to all Indian citizens, including self-employed, salaried, and those in the unorganized sector.
Interest Rate: Set by the government quarterly. Currently at 7.1% (subject to change).
Tax Benefits:
Contributions: Deductible under Section 80C up to ₹1.5 lakhs annually.
Interest Earned: Tax-free
Maturity Amount: Tax-free
Investment Limits: Minimum ₹500 annually, maximum ₹1.5 lakhs annually.
Lock-in Period: 15 years from account opening. Partial withdrawals allowed after 7 years.
Purpose: Long-term retirement savings with government backing.
Who Should Consider PPF?
People who want to take low to none risk and want stable returns without any volatility of stock market can invest in PPF.
Employees, who want to save taxes through 80c and they do not have any other investment to complete 1.5 lakh then for them PPF is very good tool along with stable returns.
PPF is designed for building a substantial retirement corpus over time.
Let’s go all the points in details now.
Deposits
Minimum Deposit in a financial year – ₹500
Maximum Deposit in a financial year – ₹1,50,000
Maximum instalments in a financial year – 12
Deposits can be made in lump sum or monthly installments.
Ex. 1 – If you have created instructions to deposit ₹10k per month, then you will be able to pay max ₹1,20,000. In last month of financial year, you want to deposit lump sum amount of ₹30k to complete ₹1,50,000 then that is not allowed.
Ex. 2 – If you have created instructions to deposit ₹12,500 per month, then you will be able to pay max ₹1,50,000.
Ex. 3 – If you missed paying minimum ₹500 in a financial year, you won’t be able to deposit anymore in that account as it will be inactive.
Lock In Period, Withdrawals and Loan
Full Withdrawal – After 15 years
Premature Withdrawal – After 7 years
Premature Withdrawal amount –
One, only one premature withdrawal in a financial year.
Two, 50% of the account balance at the end of the financial year or 50% of the amount at the end of the fourth financial year preceding the year of application, whichever is lower.
Loan Eligibility – Between 3rd and 6th years
Loan amount – up to 25% of the balance in the PPF account two years before which the loan application is made.
Extension – Block of 5 years with or without contribution option
Withdrawal amount in extension period – 60% of account balance at the time of extension start.
Closing during extension – Only after extension time is completed.
Ex. 1 – Suppose you have paid 1,50,000 every year for last 9 years and now you want to withdraw all the money from PPF account, you still have to wait for another 6 years to mature fully.
Ex. 2 – Suppose you have paid 1,50,000 every year for last 9 years and now you want to withdraw money partially from PPF account for a reason like “renovating your house”, you can make a request online to withdraw.
Ex. 3 – Your account has been matured after 15 years and you still want to keep that account open, and you want to deposit the money then you can extend for next 5 years. You can keep doing it indefinitely every 5 years. Even if you do not want to deposit, you should keep extending that if you really do not need money immediately because you will earn lot more interest in longer period due to compounding. Of course, this advice for only those who really do not want to take risk at all.
Here’s an example to show how compounding works. Suppose you keep investing ₹1 lakh every year in PPF. The average interest rate is 7.5% for 15 years. You would end up with about ₹31 lakh on maturity. To double this money at the same interest rate, it will take a little less than 10 years.
How to Open a PPF account
You can open a PPF account at most nationalized banks or designated post offices. Provide the necessary KYC documents and make your initial deposit.
You can also apply account opening online through banking websites.
Handling Inactive Accounts
If you fail to deposit the minimum annual contribution of ₹500 in a financial year, your PPF account becomes inactive. Once your account becomes inactive and if you want to deposit the minimum annual contribution, you have to revive your account.
How to revive account? You can revive your account by paying a penalty of ₹50 for each year of inactivity along with the minimum annual deposit amount.
Implications of an inactive account:
You cannot take loans against your PPF balance anymore and you won’t be able to make partial withdrawals as well.
Only after the 15-year tenure, you can withdraw your maturity proceeds even if your account was inactive, but you will need to pay the penalty for the inactive years.
Interest Rate History
| Period | PPF Interest Rate |
|---|---|
| 01.04.2024 to 31.03.2024 | 7.10% |
| 01.10.2023 to 31.12.2023 | 7.10% |
| 01.07.2023 to 30.09.2023 | 7.10% |
| 01.04.2023 to 30.06.2023 | 7.10% |
| 01.01.2023 to 31.03.2023 | 7.10% |
| 01.10.2022 to 31.12.2022 | 7.10% |
| 01.7.2022 to 30.09.2022 | 7.10% |
| 01.4.2022 to 30.06.2022 | 7.10% |
| 01.1.2022 to 31.3.2022 | 7.10% |
| 01.10.2021 to 31.12.2021 | 7.10% |
| 01.10.2021 to 31.12.2021 | 7.10% |
| 01.07.2021 to 30.09.2021 | 7.10% |
| 01.04.2021 to 30.06.2021 | 7.10% |
| 01.01.2021 to 31.03.2021 | 7.10% |
| 01.10.2020 to 31.12.2020 | 7.10% |
| 01.04.2020 to 30.09.2020 | 7.10% |
| 01.07.2019 to 31.03.2020 | 7.90% |
| 01.10.2018 to 30.06.2019 | 8.00% |
| 01.01.2018 to 30.09.2018 | 7.60% |
| 01.07.2017 to 31.12.2017 | 7.80% |
| 01.04.2017 to 30.06.2017 | 7.90% |
| 01.10.2016 to 31.03.2017 | 8.00% |
| 01.04.2016 to 30.09.2016 | 8.10% |
| 2013-14 to 2015-16 | 8.70% |
| 2012-13 | 8.80% |
| 01.12.2011 to 31.03.2012 | 8.60% |
| 01.03.2003 to 30.11.2011 | 8% |
| 01.03.2002 to 28.02.2003 | 9% |
| 01.03.2001 to 28.02.2002 | 9.50% |
| 15.01.2000 to 28.02.2001 | 11% |
| 01.04.1999 to 14.01.2000 | 12% |
| 1986-87 to 1998-99 | 12% |
| 1985-86 | 10% |
| 1984-85 | 9.50% |
| 1983-84 | 9% |
| 1982-83 | 8.50% |
| 1981-82 | 8.50% |
| 1980-81 | 8% |
| 1979-80 | 7.50% |
| 1978-79 | 7.50% |
| 1977-78 | 7.50% |
| 1976-77 | 7% |
| 1975-76 | 7% |
| 01.08.1974 to 31.03.1975 | 7% |
| 01.04.1974 to 31.07.1974 | 5.80% |
| 1973-74 | 5.30% |
| 1972-73 | 5% |
| 1971-72 | 5% |
| 1970-71 | 5% |
| 1969-70 | 4.80% |
| 1968-69 | 4.80% |
Conclusion
The Public Provident Fund (PPF) is a reliable and time-tested investment vehicle for anyone seeking a safe way to grow their savings, reduce tax liability, and plan for a comfortable retirement. If you fit the criteria, consider opening a PPF account to start building your future financial security.
Disclaimer: This article provides general information. Please consult a financial advisor for personalized advice on incorporating PPF into your investment strategy.
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