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How it is calculated

PPF interest is compounded annually on the lowest balance between the 5th and last day of each month, so investing before the 5th of the month maximises interest. Over the 15-year lock-in, each year's contribution earns compound interest at the notified PPF rate. Contributions up to ₹1.5 lakh a year qualify under Section 80C, and the interest and maturity amount are tax-free (EEE).

A fifteen-year commitment with defined exits

PPF runs for fifteen financial years from the end of the year in which the account is opened, which means the effective term is usually a few months longer than fifteen years from the date you actually opened it. It is a long commitment, but not a completely illiquid one. A loan against the balance becomes available between the third and sixth years, at a modest spread over the account rate. Partial withdrawal becomes available from the seventh year, subject to a limit expressed as a proportion of the balance at a defined earlier date. Premature closure is permitted only in specified circumstances such as serious illness or higher education, after a minimum period and with an interest penalty. At maturity the account can be extended in blocks of five years, with or without further contributions, and an extension with contributions must be exercised within a window after maturity.

Interest is credited on the lowest balance between the 5th and month-end

The interest calculation rule is the single most actionable detail about PPF and the least known. Interest for a month is computed on the lowest balance in the account between the close of the fifth day and the end of that month. The practical consequence is that a deposit made on the sixth earns nothing for that month, while the same deposit made on or before the fifth earns a full month's interest. Over fifteen years of monthly contributions, consistently depositing after the fifth costs a meaningful sum for no reason at all. For those contributing annually, depositing early in April rather than in March earns a full year's additional interest on the same money. Interest is calculated monthly but credited at the end of the financial year, which is why the balance appears static through the year and then jumps.

The rate is notified quarterly and is not fixed for the term

PPF is often described as a fixed-return instrument, and it is not quite that. The rate is notified by the government every quarter and applies to all accounts for that quarter, so the return you receive over fifteen years is a sequence of quarterly rates rather than a rate locked at opening. Historically it has moved within a range and has generally compared well with bank deposits of similar tenure on an after-tax basis, but a projection that assumes today's rate for the entire term is an estimate rather than a promise. This is worth keeping in mind when comparing PPF against instruments that do lock a rate for their whole term. What PPF does offer with certainty is sovereign backing and the tax treatment, and those, rather than the headline rate, are usually the reasons it earns a place in a portfolio.

Exempt at all three stages, within the 80C limit

PPF is one of the few instruments where contributions, the interest earned and the maturity proceeds are all exempt from tax. Contributions qualify for deduction under section 80C, within the ₹1.5 lakh ceiling shared with employee provident fund, life insurance premiums, home loan principal, tuition fees and the rest — so for many salaried people the limit is substantially consumed before any PPF contribution is made. Interest accrues tax-free and the maturity amount is received tax-free. The important qualification is that the deduction on contribution is available only under the old regime; the new regime, which is now the default, does not allow it. The exemption on interest and maturity is not affected by the regime choice, so PPF remains tax-free in substance under both — what changes is whether the contribution itself reduces your taxable income.

Where it fits, and where it does not

PPF suits a long-horizon goal where certainty matters more than growth: a sovereign-backed, tax-free accumulation with a fifteen-year discipline built in. It is a reasonable debt allocation for someone whose other savings are in equity, and it is particularly useful for the self-employed, who have no employee provident fund and no employer contribution. It fits poorly where the money may be needed sooner, because the exit routes are limited and slow; where the goal is under seven or eight years away, the lock-in works against you. It is also not a substitute for equity exposure over a very long horizon, where the historical return differential is significant. The annual contribution limit of ₹1.5 lakh caps how much can be directed into it in any case, so for most people it is one component of a plan rather than the whole of it.

Accounts for a spouse or child, and the limit that binds

The ₹1.5 lakh annual ceiling is the point most often misunderstood in family planning around PPF. An account can be opened in the name of a minor child with a guardian operating it, but the limit applies in aggregate across the guardian's own account and the minor's — so it cannot be used to double the contribution. An adult spouse has their own independent account and their own separate limit, which is a legitimate way to increase household contribution, and the deduction follows whoever actually contributes. Only one account is permitted per individual; a second account discovered later is generally regularised by merging or closing it, with interest consequences. Hindu Undivided Families can no longer open new accounts. Nomination should be filed at opening and updated after any change in family circumstances, since it materially shortens what a family has to do at the worst time.

At maturity: extend, withdraw, or leave it

Maturity brings a choice with a deadline attached, and the default is not always what people expect. You may withdraw the entire balance tax-free and close the account. You may extend in blocks of five years with fresh contributions, which requires submitting the prescribed form within one year of maturity — miss that window and the option is lost for that block. Or you may leave the balance in place without further contributions, in which case it continues to earn interest and one withdrawal a year is permitted. That third option is often the most useful and the least known: it keeps a tax-free, sovereign-backed balance earning interest with annual liquidity and no further commitment. Decide before maturity rather than after, because the extension-with-contributions route is the one with a hard deadline and it cannot be exercised retrospectively.

Frequently asked questions

When in the month should I deposit into PPF?

On or before the fifth. Interest for a month is computed on the lowest balance between the close of the fifth day and the month end, so a deposit made on the sixth earns nothing for that month. Annual contributors should deposit early in April rather than in March.

Can I open a PPF account for my child to invest more?

You can open one for a minor, but the Rs 1.5 lakh annual limit applies in aggregate across your own account and the minor's, so it does not increase the total. An adult spouse has an independent account and their own separate limit; the deduction follows whoever actually contributes.

What is the PPF lock-in period?

PPF has a 15-year maturity, extendable in blocks of 5 years. Partial withdrawals are allowed from the 7th year, and a loan facility is available in the earlier years, subject to rules.

Is PPF interest tax-free?

Yes — PPF enjoys EEE status: the contribution (up to ₹1.5 lakh under 80C), the annual interest, and the maturity amount are all tax-free. The interest rate is notified by the government each quarter.

What is the maximum I can invest in PPF per year?

The maximum is ₹1.5 lakh per financial year (the minimum is ₹500). Deposits above ₹1.5 lakh do not earn interest or tax benefit. Verify the current limits before investing.

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