PPF explained: returns, tax and the 15-year lock-in
PPF is a government-backed, tax-free savings scheme with a 15-year tenure — the safe, debt anchor of many Indian portfolios.
The Public Provident Fund (PPF) is one of India's most popular long-term savings schemes: government-backed, completely tax-free, and ideal for the safe portion of a portfolio.
The essentials
- Tenure: 15 years (extendable in 5-year blocks).
- Rate: Set by the government every quarter (currently around 7.1%), compounded annually.
- Limits: ₹500 minimum to ₹1.5 lakh maximum per financial year.
- Tax: EEE — exempt on contribution (80C), on interest, and on maturity.
Why "EEE" matters
Very few instruments are tax-free at all three stages. Your contributions reduce taxable income under Section 80C, the interest accrues tax-free, and the entire maturity amount is yours to keep. That makes PPF's effective return higher than its headline rate suggests for taxpayers.
PPF vs equity SIP
PPF is safe and tax-free but caps your return at the government rate. An equity SIP aims higher but carries market risk and is taxed on gains. They are complements, not rivals — see the trade-off on the SIP vs PPF calculator.
| PPF | Equity SIP | |
|---|---|---|
| Risk | Government-backed | Market risk |
| Return | ~7.1%, fixed | Market-linked |
| Tax | Tax-free (EEE) | LTCG on gains |
| Liquidity | 15-yr lock-in | High |
The lock-in, and how to work with it
PPF locks your money for 15 years, with limited partial withdrawals allowed from year 7. Treat it as a long-term debt allocation, not an emergency fund. The discipline of the lock-in is, for many, a feature rather than a bug.
Where it fits
Use PPF for the stable, debt-like core of a long-term portfolio, and run equity SIPs alongside it for growth. Model the growth side with the SIP calculator.
Bottom line: PPF is a rare tax-free, government-backed compounder. It won't beat equities over the long run, but it is one of the best homes for the safe slice of your money.