To Everyone Who Says That the Public Provident Fund Is a Worthless Investment…

by Vinaya HS on April 25, 2012

in Finance

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To date, I haven’t understood why some — actually many — financial experts advise you to not save-up your money in a Public Provident Fund account. Thankfully, I’m not in that camp of thought. I have always encouraged you to save the maximum allowed limit (currently Rs 100,000) each year in your PPF account. In fact, I wrote this post as soon as I came home having made my annual deposit into my PPF account. Let me tell you that I was very happy when I saw the interest credited for the past financial year (though not as happy as I could have been).

Let’s make some simple calculations –

Let’s suppose that you’ve managed to save-up a total of Rs 500,000 in your PPF account over a period of 10-years. In the 11th year, at the current rate of interest, you’d get Rs 44,000 (!) purely as interest earned. In the 12th year, you’d get nearly Rs 48,000 (!!) purely as interest earned. In the 13th, you’d get nearly Rs 52,000 (!!!) purely as interest earned. This continues to only increase according to the laws of compounding.

Seriously, what’s not there to like about that? Don’t forget that the amount that you put-in, the interest that you earn, and the amount that you withdraw are all income-tax free. There’s no need for you to worry about whether the capital markets are headed-up or headed-down or headed-nowhere. What more should the PPF account offer to convince the financial experts? (Hint: With equity there’s something to write about each day and get you to take action/change course but with the provident fund there isn’t.)

But here’s a previous post with an extremely healthy debate in the comments section where readers suggest various other options including the Employees Provident Fund and SIPs in Mutual Funds. I encourage you to read that article in its entirety.

As I’ve commented over there, it’s not an either this one or that one decision. In fact, I’m currently invested in all three forms. Just that I’m a lot peeved when someone says that the Public Provident Fund isn’t a worthy option and especially when that advise is geared towards a younger audience. Suppose you start at 23, by the time you’re in your early 30s, you’d be making a cool Rs 50,000+ per year (per the example above) simply in interest alone. And if you managed to save-up a whole lot more, you’d be making an even cooler amount as interest earned.

Seriously, don’t listen to those financial experts! Show them what an expert you are!!

Thanks for reading this article. I'd love to hear your opinion. Please use the comments section below to share your thoughts. I frequently write new articles that also cover several other aspects of personal finance including credit cards, financial goals, health insurance, income tax, life insurance, mutual funds, retirement planning, and much more. You can Subscribe through Email and receive new articles directly in your Inbox or you can Subscribe through the RSS Feed and receive new articles in your feed reader.

{ 21 comments… read them below or add one }

Vinay April 25, 2012 at 12:57 AM

100% you are correct. I started my career 17 yrs back and my father opened a PPF account as gift on 1st job and till date I deposited the max limit on PPF. A wonderful instrument for retirement.

pattu April 25, 2012 at 8:56 AM

Are you using a PPF for retirement? If yes, would that not make your ERE at least 15 financial years away from the day you started?

Nirjhar April 25, 2012 at 9:24 AM

Hi Vinaya,
Good Going .I too did my full investment of 1 L both for self and for my better half on 1st week of April .I could not do before 5.Apr bcos of Bank holidays though :-(.

I must say that PPF is really one of the saving grace in the whole India’s Financial system with her complicated tax laws .I started my career 10 years back and my dad opened an PPF account in my name in 2003.I was against it initially and never thought that this will give this much return . On 31.Mar.2012 , i got Rs 63000/- as interest and next year the interest will be Rs 84000/- .Alongwith my wife we will get more than 1 Lac in interest next year (I made her open PPF account after marriage ,too bad her dad did not do it for her earlier.I hope you have opened a PPF for your D also :-)).

PPF is still the safest bet in the debt savings market in India and with its EEE (exempt-exempt-exempt) tax treatment ,i must say this is the silverline in tax system in India for low risk investors(in middle income group) like me.But definitely we shud invest in some good stocks also alongwith some 10/5 yrs FD as interest rates are hovering around 9.5 %(an all time high in last 5 yrs) .

the only downside can be the rate of interest being reduced in future (max by 1% a year ) but i hope by another 5 years when i will close the account i will not be affected too much .

Once again thanks for your lovely post .


Indian Thoughts April 25, 2012 at 11:46 AM

Completely agree. I also like PPF alot. Safe and secure way to get good rate of interest.

Vinaya H S April 25, 2012 at 12:45 PM

@Vinay –

I don’t even want to ask you what’s the annual interest that you’re earning! It surely is a truckload. Way to go! :-)

@pattu –

I’m guessing that question is for me. Actually, my mom had opened a PPF account in my name during my college days (quite a while back!). So the account’s not that far away from maturity. But it’s just one component in my current ERE-portfolio. Not that I actually had thought about all of these back then!

Vinaya H S April 25, 2012 at 1:02 PM

@Nirjhar –

Many thanks for your detailed comment. 63 grand! Wow! That’s a whole army of rupees working for you for free. What more could one ask for? And as you correctly pointed out, one needs to wisely invest across asset classes as well.

@Indian Thoughts –

Thanks for another vote of confirmation!

Vinaya H S April 25, 2012 at 1:04 PM


Seriously. I do indeed have a wise and experienced audience reading this blog. What more could I ask for?

Rakesh April 25, 2012 at 11:25 PM


As per my view PPF is for those people who want to protect their capital and want guaranteed/ risk-free returns. The returns are in the range of 8-9% and inflation is also in the same range. I do invest in PPF but only a part amount as part of my debt portfolio. Investing in MF via SIP’s regularly for 15 years can easily generate returns in the range of 12-15%. I have been investing so far since last 5 years and have generated over 12% returns so far.

raghu April 27, 2012 at 1:42 PM


Its really true. I came to know about PPF from your blog.PPF is good and effortless saving tool…As I have started my carreer a year back.It will be really helpful for me rather than investing in any Insurance policy…

Vinaya HS April 27, 2012 at 2:39 PM

@raghu –

Indeed. :-) Have you also opted for EPF deductions from your salary?

raghu April 27, 2012 at 4:15 PM


Yes….It will be 12% of my basic as mandated by government.

raghu April 27, 2012 at 4:30 PM


Yes….It will be same as 12% of basic.

Roberto el Sandriano April 29, 2012 at 12:53 AM

PPF is a no brainer. You will find a lot of ‘experts’ who would go on about virtues of long term investment in equities. But believe me, PPF is as simple (and rewarding) as it can get when it comes to investing. I would like to highlight one more important scenario regarding PPF. Imagine you have a PPF account which is 12 yrs old and the prevailing interest rate then on a 5 yr fixed deposits is around 7-8%. Just imagine how important your PPF becomes. It presents you with a readymade solution where in you need not worry about tax on the interest received (and amount invested in some cases) and the holding period is also below 5 years. Can it get simpler and rewarding than this?


Vinaya HS April 29, 2012 at 2:51 PM

@Roberto el Sandriano –

Very well said. Made me think of an old Hero Honda ad that had the punchline “Fill it. Shut it. Forget it.” Same with the PPF account. Fill it in April. Shut it till next April. Forget it till you hit financial independence.

Anonymous May 2, 2012 at 4:26 PM

Hi Vinaya,
I have a query on PPF account for children.
I read somewhere that PPF accounts can be opened for children as well. If we open a PPF account when very young (<5 years), will they not be able to open one when they are say 21?

Rakesh May 2, 2012 at 6:53 PM

PPF account can be opened for a child of one month too, i did it for my child. After 15 years you can renew the account in slabs of 5 years, so that should not be a problem.

Vinaya H S May 3, 2012 at 6:20 AM

@Rakesh –

Thanks for answering. :-)

Siddhant May 17, 2012 at 10:14 AM

This is very true, I think PPF is the best investment methodology, Not only because the income is Exempt & you get compulsory compounding but also because it is the only Financial instrument which can not be confiscated by any decree of the law if you have fallen on bad times, so for a businessman or aspiring businessman where the possibility of losses is there PPF is essential from survival perspective in very bad times, for me this specific provision itself makes it the best & most secure investment.

Ashwin August 29, 2012 at 5:31 PM

I have a question.
Isnt RD for 15 years@10% better than PPF for 15 yrs@8.8%.

If you take flexible RD, you have the option of adding an amount which is flexible and of your choice.

Let me know if i am right?


Mamatha December 21, 2012 at 5:46 PM

Hi Vinaya,
Thank you for wonderful blog. I am yet to open one PPF account. I have 2 doubts
1. will the Interest be compounded at end of FY or the year after PPF account was opened ?
suppose if i have open account in Jan 2013 can i invest 1L in January as well as in April/May 2013?

Vinaya H S December 24, 2012 at 4:35 AM

@Mamatha –

Thanks for your queries.

1. See this detailed post on — how the PPF interest is calculated. In a way you can say that the compounding happens from the very next month after you make the first deposit.

2. Yes you can since the two deposits would fall under different financial years.

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