Public Provident Fund (PPF)

The Public Provident Fund is a long-term savings scheme backed by the Government of India. It is designed to encourage individuals to build savings over an extended period.

A PPF account can be opened through authorised banks or post offices. The account has an initial tenure of 15 years, after which it can generally be extended in blocks of 5 years.

Important features include:

• Minimum annual contribution of ₹500
• Maximum annual contribution of ₹1.5 lakh
• Interest rate set by the government and reviewed periodically
• Interest compounded annually
• Eligibility for deduction under Section 80C, subject to the applicable tax regime and overall limit
• Interest and eligible maturity proceeds are tax-exempt under current rules

PPF is not designed for frequent withdrawals. Partial withdrawals are permitted only after specified periods and subject to scheme rules. Loans against the account may also be available during certain years.

Because PPF combines government backing, long-term compounding, and tax advantages, it is commonly used for goals such as retirement or other long-term financial needs. Its main limitation is that money remains relatively illiquid for many years.

Building Long-Term Savings

Kavita opens a PPF account at age 30 and contributes ₹1 lakh every year.

Instead of withdrawing the money for short-term expenses, she continues contributing over the 15-year period. Each year, interest is added according to the rate applicable to the scheme, and future interest is earned on the growing balance.

By maintaining the account for the long term, Kavita benefits from compounding and tax-efficient savings.

However, she also understands that PPF is not suitable for money she may need at short notice because access to the funds is restricted.