The Public Provident Fund (PPF) is a magical government savings scheme that not only secures your financial future but also offers a golden opportunity to save taxes. Completely protected from market fluctuations, this scheme is a boon for those looking to build a substantial corpus for retirement planning or their children’s higher education. Understanding the math of how monthly savings of just ₹12,500 can lead to a fortune of over ₹40 lakh is essential for every savvy investor. In this detailed guide, we’ll explore every aspect of PPF that makes it one of India’s most popular investment schemes.
Government Guarantee and Risk-Free Investment
The Public Provident Fund (PPF) is fully backed by the central government, which means your capital is 100% safe. Unlike the stock market or mutual funds, there’s no fear of losing money. This is why the Indian middle class has relied on this trusted scheme for decades.
Currently, the government offers an annual interest rate of 7.1%. Although interest rates are revised quarterly, PPF has historically delivered excellent inflation-beating returns. The investment period is 15 years, which can be extended in blocks of 5 years each.
EEE Category Benefits
PPF’s biggest strength is its EEE (Exempt-Exempt-Exempt) status. Very few investment options offer tax benefits at three levels:
Investment: Tax exemption on investments up to ₹1.5 lakh per year under Section 80C of the Income Tax Act.
Interest: The interest earned each year is completely tax-free.
Maturity: When you withdraw your entire corpus after 15 years, you don’t have to pay a single rupee of tax.
How to create a fund of ₹40.68 lakh
If you deposit the maximum limit of ₹12,500 every month (₹1.5 lakh annually), the amount you receive after 15 years will be eye-opening.
Monthly Investment: ₹12,500
Annual Investment: ₹1,50,000
Total Investment (15 years): ₹22,50,000
Estimated Interest (7.1%): ₹18,18,209
Total Maturity Amount: ₹40,68,209
The real game here is compounding. Over 15 years, your interest will reach close to your deposit amount, making it a powerful long-term wealth creator.
Loan and Partial Withdrawal Facility
Many people think that money in a PPF is locked for 15 years, but in reality, this scheme is quite flexible. PPF not only secures your future but also provides a helping hand when needed. Between the third and sixth year of account opening, you can avail a low-cost loan against your deposit balance.
After five years of account opening, you can withdraw a portion of your funds for special circumstances (such as illness or education). After five years, you can also close the account (with a 1% interest deduction) due to serious illness or children’s higher education.
How to Open a Post Office PPF Account
Opening a PPF account is very simple. You can open this account by visiting your nearest post office or any major government/private bank. You will need your Aadhaar card, PAN card, and a photo. You can start with just ₹500 and deposit up to ₹1.5 lakh per year. Nowadays, through internet banking, you can transfer money to a PPF even while sitting at home.