The ultimate guide to PPF: How, why and when to invest to maximise returns

For first-job earners and Gen Z investors, it works as a financial stabiliser while riskier assets do the heavy lifting.

 The 15-year lock-in

PPF is not designed for short-term goals. It comes with a 15-year lock-in, counted from the end of the year in which the account is opened. You cannot withdraw the entire balance before maturity.

This long commitment enforces discipline and makes PPF suitable for retirement planning or long-term capital protection, not for emergencies or near-term expenses.

How PPF interest rate works?

PPF interest rates are set by the government every quarter.

Currently, the rate stands at 7.1 per cent. While this may appear modest compared to market-linked products, the crucial difference is that PPF returns are risk and tax-free. For someone in the 30 percent tax slab, a 7.1 per cent tax-free return is equivalent to earning over 10 percent before tax from a fixed deposit.

The timing matters

PPF interest is calculated monthly but credited annually. The calculation is based on the lowest balance between the 5th and the last day of each month. Depositing after the 5th means losing interest for that month.

Over 15 years, missing this window repeatedly can meaningfully reduce the final corpus. Investing before the 5th helps maximise returns without increasing contributions.

The Rs 1.5 lakh cap

PPF has an annual contribution limit of Rs 1.5 lakh. This applies whether you invest in one go or in instalments. Any amount deposited beyond this limit earns neither interest nor tax benefits.

The cap also includes deposits made into a PPF account opened for a minor child, a detail many investors overlook.

PPF’s exempt-exempt-exempt tax status

PPF enjoys exempt-exempt-exempt status under the old tax regime. Contributions qualify for deduction under Section 80C, the interest earned is fully tax-free and the maturity amount is also tax-free.

Very few investment options offer this level of tax efficiency, which is why PPF becomes more valuable as income and tax liability rise.

When and how are partial withdrawals allowed?

PPF allows partial withdrawals only after five years from the end of the year in which the account was opened.

Even then, withdrawals are capped at 50 percent of the eligible balance. It is calculated as the lower of the balance at the end of the fourth year before withdrawal or the balance at the end of the immediately preceding year. For example, if an account opened in February 2019 had a balance of Rs 6 lakh in 2021 and Rs 8 lakh in 2024, the maximum withdrawal allowed in 2025 would be Rs 3 lakh.

PPF loans

Between the first and fifth year, PPF allows account holders to take a loan against their balance.

The loan amount is limited to 25 percent of the balance at the end of the second year preceding the year of application. A loan taken in 2025–26 would be based on the balance as of March 31, 2024. The principal must be repaid within 36 months. If repaid on time, interest is charged at just 1 percent per annum. Delays push it to 6 percent.

Your options when PPF matures

At the end of 15 years, maturity does not force closure. Investors can withdraw the full amount, continue the account without making further deposits while still earning interest, or extend the account in blocks of five years with fresh contributions.

The option to extend with deposits must be exercised within a year of maturity. Once the account is continued without deposits for more than a year, contributions cannot be restarted.

Premature closure 

A PPF account can be closed before maturity only after five years from the end of the year in which it was opened and only in specific cases. These include a life-threatening illness of the account holder, spouse or dependent children, higher education of the account holder or dependent children, or a change in resident status such as becoming an NRI. In such cases, the interest earned is reduced by one percentage point for the entire applicable period.

How does it fit in a young investor’s portfolio?

PPF is not a wealth creating tool. It is a capital protection and stability instrument. Over long periods, relying only on PPF may not beat inflation meaningfully.

For young investors, it works best alongside equities and other growth assets, acting as a steady, tax-efficient anchor while the rest of the portfolio takes calculated risks.

PPF may never be exciting but it is dependable. When used with clarity and patience, it quietly builds long-term security making it one of the smartest background investments a young investor can make.