What is the Public Provident Fund (PPF)?
The Public Provident Fund (PPF) is a long-term savings scheme backed by the Government of India. It allows you to build a retirement corpus while saving on taxes.
It is one of the few investment options that fall under the EEE (Exempt-Exempt-Exempt) category, meaning your investment, interest earned, and maturity amount are all 100% Tax-Free.
Who Can Open a PPF Account?
- Resident Individuals: Any Indian resident can open a PPF account.
- Minors: Parents can open an account on behalf of a minor child.
- Restrictions: NRIs and HUFs cannot open new PPF accounts. However, existing NRI accounts can continue until maturity.
PPF vs FD vs ELSS: Quick Comparison
| Feature | PPF | Bank FD | ELSS Mutual Fund |
|---|---|---|---|
| Returns | ~7.1% (Guaranteed) | 6.5% – 7.5% | 12% – 15% (Market Linked) |
| Tax Status | EEE (Tax Free) | Fully Taxable | LTCG @ 12.5% |
| Lock-in | 15 Years | 7 Days – 10 Years | 3 Years |
| Risk | Zero Risk (Govt-backed) | Low Risk | High Risk |
Loan Against PPF & Partial Withdrawals
You can take a loan against your PPF balance from the 3rd to the 6th financial year. The loan interest rate is usually 1% higher than the prevailing PPF interest rate. From the 7th year onwards, you become eligible for partial withdrawals instead of loans.
Extension Rules (After 15 Years)
After the mandatory 15-year lock-in, you can extend your PPF account in blocks of 5 years. You have two options:
- Extension with Contribution: Continue depositing money and earning interest. (Requires Form-H submission).
- Extension without Contribution: Stop depositing but keep the balance in the account to earn interest.
PPF Calculation Formula
The interest on PPF is compounded annually. The formula is similar to the Future Value of an Annuity:
- A: Maturity Amount
- P: Annual Installment
- i: Annual Interest Rate
- n: Tenure (15 to 50 years)
Key Advantages of PPF
- EEE Tax Status: No tax on investment, interest, or withdrawal.
- Sovereign Guarantee: 100% capital safety backed by Govt of India.
- Protection from Attachment: Cannot be claimed by creditors or courts.