Understanding Public Provident Fund (PPF)

The Public Provident Fund (PPF), a government-backed savings scheme, offers compounded tax-free returns over a 15-year tenure.

Interest is calculated monthly on the lowest balance between the 5th and the last day of each month, but it is credited annually to your account.

Example of PPF Growth

1. Annual Contribution: ₹1,50,000 (maximum limit)
2. Interest Rate: 7.1% (current rate)
3. Investment Period: 15 years

If ₹1,50,000 is deposited at the beginning of each financial year, your wealth grows as follows:

• Year 1: ₹1,50,000 → ₹1,60,650 (₹10,650 interest)
• Year 15: ₹40,68,209 total corpus (₹18,18,209 interest)

The power of compounding ensures exponential growth over the years.

Benefits of PPF

1. Tax Advantages: Investment, interest, and maturity proceeds are tax-free under Section 80C
2. Guaranteed Returns: Risk-free, government-backed, and unaffected by market fluctuations
3. Flexibility: Annual contributions range from ₹500 to ₹1,50,000
4. Wealth Building: Ideal for long-term financial goals
5. Loan and Partial Withdrawals: Accessible after specific tenure milestones

XIRR of PPF

The tax-free nature of PPF enhances its effective returns.

Assuming consistent annual contributions of ₹1,50,000 at 7.1%, the XIRR (Extended Internal Rate of Return) over 15 years is approximately 10.4%, significantly higher than taxable fixed-income instruments.

Conclusion

Public Provident Fund (PPF) is an excellent avenue for individuals seeking safe, tax-efficient, and long-term wealth creation, blending guaranteed returns with compounding magic.