Guaranteed but variable

Some investments promise a fixed return for their whole life. Others swing entirely with the market. A few sit in between: the return is guaranteed, in the sense that it will definitely be paid — but the rate itself is not locked in for good.

The workbook uses the Public Provident Fund as its example of this middle category, describing its periodic income as "guaranteed but variable."

The workbook's own line, discussing return calculations: "In case of some products, like the public provident fund (PPF), the periodic income [is] guaranteed but variable because the interest payable on products like PPF is reset every quarter."

This sits between the two poles the workbook sets up earlier: a fixed and guaranteed product, like a bank fixed deposit, where the rate is locked at the time of investment and does not move regardless of what happens to market rates afterward; and a market-linked product, like equity, where both the rate and the underlying value can move unpredictably. PPF-type products guarantee that interest will be paid — there is no default risk in the way a market-linked return carries uncertainty — but the rate itself is reset every quarter, so it is not fixed for the life of the investment the way an FD's rate is.

An investor opens a PPF account. In the quarter they invest, the government-declared PPF rate is 7.1%. That rate is guaranteed to be paid on the balance for that quarter — there is no risk the interest simply fails to materialise, unlike, say, dividend income from equity.

But the rate is not locked in for the PPF account's full 15-year tenure. If the government revises the PPF rate down to 7.0% the following quarter, the investor's balance from that point earns the new, lower rate — not the 7.1% they might have expected based on the rate when they first invested. Compare this to a 5-year bank fixed deposit booked at 7%: that rate stays exactly 7% for the full five years, regardless of how PPF or market rates move in the meantime.

Chapter 5, section 5.1, sets up the fixed-versus-market-linked-returns framework, and this quarter-reset PPF example is the workbook's bridge between the two categories. Expect a question distinguishing a "fixed and guaranteed" product (rate locked for the tenure) from a "guaranteed but variable" one (rate guaranteed each period, but reset periodically) from a purely "market-linked" one (neither guaranteed nor fixed).

• "Guaranteed" here means the interest will be paid, not that the rate never changes. The rate changes; the fact that some interest is paid at whatever the current rate is does not.
• PPF's rate resets every quarter, on a government-declared schedule — this is different from a bank fixed deposit, which locks its rate for the full tenure chosen at the time of booking.
• Do not confuse this category with a purely market-linked return — PPF carries no market or default risk to the interest itself, only uncertainty about the future rate level, which is a materially smaller risk.