Public Provident Fund
Also written PPF · Public Provident Fund (PPF)
A 15-year government-guaranteed savings account for individuals, at a rate reset quarterly, where the contribution, the interest and the maturity value are all outside tax under the old regime.
In plain language
The PPF is the plainest long-horizon savings product in the paper and, for a retirement adviser, one of the most useful. It is a 15-year deposit with a bank or a post office, the government guarantees both interest and principal, and the interest is not paid out — it stays in the account and compounds.
What makes it distinctive is the tax treatment. The contribution is deductible, the annual interest is exempt, and the maturity value is tax free. Very little else in India is exempt at all three stages.
The restrictions are the point, not a defect. Money you cannot easily take out is money still there at 60.
How it works
Who. Individuals only. One account per individual, plus one that may be opened in the name of a minor. HUFs and NRIs cannot open a PPF account.
Return. A debt-oriented investment paying periodic interest announced by the government every quarter. The rate is therefore not fixed for the life of the account — a point the workbook makes about small savings schemes generally.
Limits. Minimum Rs 500 a year, maximum Rs 1,50,000 a year, in one lump sum or any number of instalments in a financial year.
Liquidity, and its timetable.
| Facility | When |
|---|---|
| Loan against the balance | 4th to 6th year, on the balance standing between the 3rd and 5th financial year |
| One withdrawal per financial year | from the 7th financial year, to permissible limits |
| Premature closure | after at least 5 years, for specified needs such as medical expenses or the education of dependents |
| Maturity | 15 years |
Tax. The annual contribution is deductible under section 123 read with Schedule XV of the Income-tax Act, 2025 (corresponding to section 80C of the 1961 Act), within the aggregate limit and subject to conditions. This deduction is not available under the new tax regime under section 202 (corresponding to section 115BAC). The interest earned each year is exempt and the maturity value is tax free.
A worked example
An adviser maps a 45-year-old's PPF account to a retirement goal at 60. He contributes the maximum, Rs 1,50,000 at the end of each financial year, for 15 years.
The declared rate is reset every quarter by the government, so no rate can be assumed from the workbook. Take 7 per cent purely as an illustration — the arithmetic, not the rate, is the lesson.
FV = 1,50,000 × [((1.07)^15 − 1) ÷ 0.07]
= 1,50,000 × 25.129
= Rs 37,69,350
| Amount | |
|---|---|
| Contributed over 15 years | Rs 22,50,000 |
| Interest credited | Rs 15,19,350 |
| Maturity value | Rs 37,69,350 |
| Tax payable on the interest | Nil |
| Tax payable on maturity | Nil |
Rs 15.19 lakh of interest reaches him whole. For a taxpayer in the 30 per cent slab under the old regime, earning the same Rs 15.19 lakh in a taxable deposit would leave about Rs 10.6 lakh after tax — a gap of roughly Rs 4.6 lakh over the term, before counting the deduction claimed on the way in.
Against that, note what the account will not do. If the same person needs Rs 5 lakh in year 3 for a medical emergency, the PPF gives him a loan, not a withdrawal — withdrawals start in the 7th financial year.
Why NISM asks about it
Chapter 6 (Retirement Planning Products: Other Investment Products) profiles the PPF under the standard six headings the paper uses for every product — nature, return, risk, tenor, limits, liquidity, taxability, suitability for accumulation — and Chapter 2, section 2.10.4, lists it first among the small saving instruments. Expect the Rs 500 / Rs 1,50,000 limits, the 15-year tenor, the loan-and-withdrawal timetable, and the HUF/NRI exclusion as direct recall. Suitability questions ask why a product with restricted withdrawals is well suited to the accumulation stage.
Common exam traps
- The rate is not fixed for 15 years. It is announced quarterly by the government. Any question implying a locked-in rate for the term is wrong, and any corpus projection is an assumption.
- Loan and withdrawal are different facilities on different clocks. Loan in the 4th to 6th year; one withdrawal a year from the 7th financial year; premature closure only after 5 years and only for specified needs.
- The workbook itself gives two different instalment multiples — Chapter 2 says multiples of Rs 50 and Chapter 6 says multiples of Rs 5. The Rs 500 minimum and Rs 1,50,000 maximum are consistent across both; if a question turns on the multiple, note the conflict rather than guessing.
- One account per individual, plus one for a minor. Two accounts in one name is not permitted.
- HUFs and NRIs cannot open a PPF account. This is asked directly.
- The Rs 1,50,000 deduction is an aggregate, not a PPF allowance. It is shared with every other section 123 / Schedule XV product, and the workbook's worked example on best use of the limit turns on exactly that.
- The deduction is an old-regime benefit. It is not available under section 202 (the new regime) — though the exemption of the interest and maturity value stands on its own footing.
Where this is taught
- Series X-B · Chapter 5: Retirement Productsintroduced here
- Series SEBI-ICE · Chapter 9: Government Schemes for Various Savings and Investment Optionsintroduced here
- Series XVII · Chapter 2: Financial Markets & Investment Productsintroduced here
- Series XVII · Chapter 6: Retirement Planning Products: Other Investment Products
Related terms
- Inflation riskThe risk that the money an investment pays out will be worth less in goods and services than expected, because prices have risen — highest in fixed-return products and most damaging to retirees.
- Atal Pension YojanaA government-guaranteed defined-pension scheme for unorganised-sector workers, paying a fixed Rs 1,000 to Rs 5,000 a month from age 60 for contributions started between ages 18 and 40.
- Accumulation stageThe working years, in which saving and investment build the retirement corpus — the stage where the ability to take risk is highest and where time, not contribution size, does most of the work.
- Voluntary Provident FundAn EPF member's option to contribute more than the mandatory 12% of basic and dearness allowance into the same EPF account, up to 100% of it, with no matching contribution from the employer.
- National Savings CertificateA 5-year, government-guaranteed post office certificate with annual compounding paid at maturity, a Rs 1,000 minimum, no maximum, and an old-regime deduction on the investment.
- Section 80CThe income-tax deduction for money put into life insurance, provident fund, ELSS, five-year bank deposits, NPS Tier 1, NSC and home-loan principal, capped in aggregate at Rs 1,50,000 a year.
- Equity Linked Saving SchemeAn equity mutual fund category that carries a section 80C deduction of up to Rs 1.5 lakh with a compulsory three-year lock-in — the shortest lock-in of any tax-saving instrument.
- Five-year service testThe rule that makes an EPF withdrawal tax-free: complete five consecutive years of service and the balance is exempt; withdraw before that and it is taxable, with two exceptions.
- Sukanya Samriddhi YojanaA Government savings scheme for a girl child, opened by a guardian when she is 10 or younger. Deposits qualify under Section 80C; partial withdrawal for education or marriage is allowed after 18.
- PPF extension with contributionThe option, chosen within one year before a PPF account matures, to keep the account running in blocks of 5 years with further contributions — capped at 60% withdrawal of the balance per extension block.
- PPF extension without contributionThe default PPF extension route if no active choice is made at maturity — the account continues in 5-year blocks with no further deposits, but allows one withdrawal a year of any amount up to the full balance.
- PPF as a tax saving instrumentThe workbook's three-way comparison of PPF against ELSS and NPS Tier 1 as tax-saving options — PPF offers a guaranteed, government-backed return, at the cost of a 15-year lock-in versus ELSS's 3 years.
- NPS Tier-II Tax Saver SchemeA Tier II NPS option for Central Government subscribers with an active Tier I account whose contributions qualify for the old-regime deduction, subject to a three-year lock-in per contribution.
- Senior Citizens Saving SchemeA five-year, government-guaranteed deposit for those aged 60 or above, capped at Rs 30 lakh across accounts, paying interest every quarter at a rate the government announces quarterly.
- Kisan Vikas PatraA government-guaranteed post office certificate that doubles the amount invested over a fixed term — 124 months in the workbook — with no tax incentive and interest taxed on accrual.
- Guaranteed but variableA return category between fixed and market-linked — the workbook's description of products like PPF, where interest is guaranteed but its rate is reset periodically rather than fixed for the whole tenure.
- Reset-linked instrumentsDeposits and certificates whose interest rate is not fixed for the whole tenor but re-fixed at intervals to reflect current market rates — the small savings schemes, which the workbook resets every quarter.
- Mahila Samman Savings CertificateA two-year small savings certificate for women and girls at 7.5 percent compounded quarterly, capped at Rs 2 lakh, whose enrolment window ran from April 2023 and closed on 31 March 2025.
- Life-stage evaluationJudging a retirement benefit product against the objectives of the stage the investor is in — pre-retirement, retirement or post-retirement — because each stage needs a different thing from the product.
- Market linked retirement productsRetirement accumulation products whose return depends on markets — NPS, ELSS and other mutual fund schemes — set against non-market-linked products such as PPF, where the principal is not at risk.