scorecardresearchWhat does it take to invest in PPF and stay invested in it? We explain
Should you invest in PPF?

What does it take to invest in PPF and stay invested in it? We explain

Updated: 26 May 2023, 01:19 PM IST

A PPF investment translates to “Committing to Investing” considering how the same must be continued for 15 years. Putting money in a PPF account surely helps, but are you ready to commit for such a long period, given the comparatively low-interest rates and stringent rules regarding withdrawal?

When it comes to investing in government-sponsored schemes, most investors are familiar with how putting money in a Public Provident Fund (PPF) account and staying invested in it for 15 long years can help them create a decent corpus after a period. 

The current interest rate is 7.1 percent as decided on April 01, 2023. The idea behind putting money in a PPF account is simple – invest up to 1,50,000 every year for up to 15 years and witness the magic of compounding unfold before your eyes.

The following calculation explains why so many people start their investing journey with a PPF account in place.

In the case of yearly contribution

Annual Investment: 1,50,000

Interest Rate: 7.1%

Investment Tenure: 15 years

translates to

Amount Invested to Date: 22,50,000

Interest Earned: 18,18,209

Amount on Maturity: 40,68,209

In the case of monthly contribution

Monthly Investment: 12,500

Interest Rate: 7.1%

Investment Tenure: 15 years

translates to

Amount Invested to Date: 22,50,000

Interest Earned: 17,70,301

Amount on Maturity: 40,20,301

Continue this investment for the next 15 years, and you will find yourself among the rare “multimillionaires” envied by the common risk-averse investors limiting their investments to simple bank deposits and nondescript endowment plans issued by various pension fund houses.

For example, a 20-year-old man invests 1,50,000 every year in a PPF account and chooses to continue his investments unless he turns 50 years old. This is possible as investors are allowed to extend their investments by five years for the next 15 years, thus, taking the total investment tenure to 30 years.

Amount Invested to Date: 45,00,000

Interest Earned: 1,09,50,911

Amount on Maturity: 1,54,50,911

Lower interest rates

However, putting money in a PPF account may not be as advantageous as it looks at the outset. To start with, the interest rate is much lesser than what is offered on Employees’ Provident Fund Organisation (EPFO) deposits, which is 8.15 per cent.

Now, this can be a cause of concern for salaried people allocating more money to their EPF accounts by simply filling up the Voluntary Provident Fund (VPF) form.

Though one may argue in favour of the tax benefits on PPF investments and maturity amount, investors must be aware that EPF investments are taxable only when they surpass a certain limit specified in the Income Tax Act, 1961 rules.

This implies how instead of investing in PPF, salaried individuals can gain comparable tax benefits and higher interest by designating larger funds to their EPF accounts through VPF.

Prolonged lock-in period

Do you have the patience to continue with your investments for 15 long years? What if you need to stop the investment or prefer medium-term investments not beyond five years? While the compounding effect on money is not possible unless you are willing to stay invested for a long investment tenure, you must put your money in a PPF account only when you are willing to stay committed for such a long investment period. In the end, your investment plans must resonate with your financial goals, so be aware of how much you wish to invest for how long.

Limit on deposits

A long investment tenure is not enough to secure the much-desired wealth. One must be willing to commensurate their investments too in sync with how much they wish to accumulate. However, there is a limit on PPF deposits, i.e., 1,50,000. Irrespective of how much money you are willing to put in, the bar on the investment limit continues.

The set maximum deposit limit, which has not been raised in several years, limits the investment potential for people wishing to invest larger sums. This also explains why more salaried investors are shifting to the VPF scheme wherein they can invest up to 2,50,000 from their annual income without incurring any added tax liability.

Restrictions on early withdrawal

You apply for premature withdrawal from your PPF account and will realize how they are subject to severe requirements. To start, such withdrawals are limited to only one each year after five years, omitting the year of account opening. You cannot jump in to close your PPF account prematurely as premature closure is permitted only after five years of opening the account, subject to certain conditions and a one per cent deduction on the interest amount.

However, if you are not willing to continue investing further, you can simply continue the account by investing 500 every year up to the date of maturity. This restriction compared to equity-linked savings schemes (ELSS) seems harsh as ELSS investors can withdraw the amount at their will, subject to paying a minimum exit load on their withdrawal amounts.

Premature closure disallowed

The idea behind introducing the PPF scheme was to ensure continued investments for a prolonged period, thus, enabling investors to earn and accumulate enough amount over the period. This also explains why the government has in place such strict rules for investors applying for PPF account closure. Early closure of the PPF account is subject to certain conditions only, some of which include:

  • The account holders, their spouse, or their dependent children are suffering from a terminal disorder or disability.
  • The account holder wishes to withdraw money to pay for his child’s higher education.
  • The account holder plans to leave the country and settle outside forever.

There is a penalty of one per cent interest on the interest accumulated since the day of opening the account. However, though this penalty interest seems paltry, the penalty amount can be hefty when evaluated in rupees.

No doubt, including a PPF investment in one’s investment portfolio, helps. However, a lot depends on your idea of finances, how frequently you need to withdraw money, and your likelihood of continuing your investments for more than a decade.


How long will it take to double the money via PPF.
How long will it take to double the money via PPF.
First Published: 26 May 2023, 01:19 PM IST