What Is the Public Provident Fund (PPF)?

What PPF is

The Public Provident Fund is a long-tenure savings scheme backed by the Government of India. You contribute within an annual limit, the balance earns interest that is compounded once a year, and the scheme runs for a long fixed term with defined extension and withdrawal rules.

How PPF interest is actually computed

Interest is calculated each month on the lowest balance between the 5th and the last day of the month, at the rate the government has notified for that quarter, and credited to the account once at the end of the financial year. Two practical consequences: a deposit made on or before the 5th earns interest for that month, while one made on the 6th starts earning only from the next month; and because crediting happens annually, the account compounds once a year rather than quarterly like a bank FD.

Illustration: ₹1.5 lakh a year for 15 years

At an illustrative constant rate of 7.1%, with the full ₹1,50,000 deposited at the start of each year, the balance at maturity is about ₹40.7 lakh — ₹22.5 lakh of deposits and roughly ₹18.2 lakh of interest. If the same ₹1.5 lakh were instead spread as ₹12,500 a month, the result would be a little lower because later deposits in each year earn less. The real rate has changed many times over the scheme's history, so treat this as a scenario, not a projection.

Scheme features to know (verify before investing)

• Tenure: 15 financial years from the end of the year of opening, extendable in blocks of five years with or without further deposits.
• Deposits: a minimum annual deposit keeps the account active; an annual ceiling applies, and amounts above it earn no interest. Deposits can be made in lump sum or instalments.
• Liquidity: loans against the balance are allowed from the third to sixth year; partial withdrawals from the seventh year, within limits; premature closure only in specified circumstances.
• Tax: PPF has historically enjoyed exempt-exempt-exempt treatment — deduction on deposit (old regime), tax-free interest and tax-free maturity. Confirm current treatment with the Income Tax Department.
• Who can open: resident individuals, including on behalf of a minor; one account per person. Rules for NRIs differ.

Current rates, limits and rules are published by the Ministry of Finance and the National Savings Institute. Run scenarios with the PPF calculator, and compare with an FD in PPF vs FD.

Where it fits

PPF is generally used for long-term, low-volatility goals because of its government backing and fixed compounding. It is less liquid than a bank deposit, so it suits money you can commit for the long term.