What is PPF?
PPF, or Public Provident Fund, is a long-term savings scheme backed by the Government of India. You deposit money every year, it earns interest at a rate set by the government, and the full amount is paid back to you when the account matures.
A PPF account runs for 15 years. After that you can extend it in blocks of 5 years, with or without making new deposits, for as long as you like.
Because it is government-backed and the interest is tax-free, PPF is one of the safest ways to build savings for long-term goals such as retirement or a child’s education.
Fun fact
PPF is one of the few investments with EEE tax status: what you deposit, the interest you earn and the amount you withdraw at maturity are all tax-free.
What is a PPF Calculator?
A PPF calculator works out the maturity value of your PPF account and the total interest you will earn, based on how much you deposit each year and for how many years.
The rate of interest is fixed by the government and reviewed every quarter, so the calculator uses the current rate. If the rate changes in future, your actual maturity value will change too.
Why you should use a PPF Calculator?
- See your long-term growth: Over 15 years or more, compounding makes a big difference. See how much of your maturity value comes from interest.
- Plan your yearly deposit: Try different yearly amounts, up to the ₹1,50,000 limit, to find one that meets your goal.
- Decide on extensions: Compare the maturity value at 15, 20, 25 years and beyond before deciding whether to extend your account.
How Does a PPF Calculator Work?
The PPF calculator works on the following inputs:
- Yearly Investment: The amount you deposit each year, from ₹500 to ₹1,50,000.
- Time Period: 15 years, or longer in blocks of 5 years.
- Rate of Interest: The current PPF rate, fixed by the government.
The calculator relies on the following formula:
M = P × [((1 + i)^n − 1) ÷ i] × (1 + i)
- M
- Maturity value
- P
- Yearly investment
- i
- Yearly rate of interest (rate ÷ 100)
- n
- Number of years
This assumes you deposit at the start of each financial year, so every deposit earns interest for the full year. Interest is compounded once a year.
Formula to Calculate PPF with an Example
Consider an example for a better understanding.
- Yearly Investment: ₹25,000
- Rate of Interest: 7.1% per annum
- Time Period: 15 years
Using the formula:
M = 25,000 × [((1.071)^15 − 1) ÷ 0.071] × 1.071
After calculation, the maturity value is ₹6,78,035. You invest ₹3,75,000 in total, and earn ₹3,03,035 as interest.
Things to keep in mind
- Deposit before the 5th: Interest each month is calculated on the lowest balance between the 5th and the end of the month. Depositing before the 5th of April earns interest for the whole year.
- Minimum deposit: Deposit at least ₹500 every financial year, or the account becomes inactive until you pay a small penalty.
- Tax benefit: Deposits up to ₹1,50,000 a year can be claimed as a deduction under Section 80C in the old tax regime.
- Early access: Partial withdrawals are allowed from the 7th year, and loans against the balance from the 3rd to the 6th year.