PPF, and why the date you deposit matters
How the fifth-of-the-month rule quietly costs a month of interest, what the fifteen-year term actually means, and why extending in blocks of five changes the arithmetic.
Last reviewed · 1,279 words
In short
- Interest is calculated on the lowest balance between the 5th and the last day of each month, so a deposit made on the 6th earns nothing that month.
- ₹1.5 lakh a year for fifteen years at 7.1% grows to about ₹40.68 lakh, of which ₹18.18 lakh is interest you did not deposit.
- The maturity is genuinely tax free — deposit, interest and withdrawal are all exempt, which almost nothing else in India is.
- The fifteen-year term ends on 31 March after fifteen full financial years, so a mid-year account effectively runs longer.
- Extending in five-year blocks with contributions is where the largest interest arrives, because the balance is already large.
The Public Provident Fund is a fifteen-year government-backed savings scheme with one property nothing else in India quite matches: the deposit is deductible, the interest is exempt, and the maturity is exempt. Exempt-exempt-exempt, and sovereign-guaranteed.
The arithmetic is straightforward. The rule that costs people money is not in the arithmetic at all.
The fifth-of-the-month rule
Interest is calculated on the lowest balance in the account between the close of the 5th day and the last day of each month, and credited once a year on 31 March.
The consequence is precise: a deposit that arrives on the 6th of a month is not part of the lowest balance for that month and earns nothing until the next one.
This calculator models a deposit made before the 5th, so a full year of interest is earned on it. One year at a time:
balance = (balance + yearly deposit) × (1 + rate ÷ 100)
repeated for the number of years, which makes interest = maturity - total deposited. The 80C deduction shown alongside is min(yearly deposit, 150000) × years — the cap is on the deduction, not on what the account may hold.
On ₹1,50,000 deposited annually at 7.1%, depositing on 6 April rather than 5 April costs one month of interest — about ₹888 in the first year. Repeated for fifteen years, and with each missed amount compounding, the total cost runs past ₹20,000. For a single day.
Deposit on or before the 5th of April, every year. That is the whole optimisation, and it is worth more than most fund selection decisions of the same size. If you contribute monthly, deposit before the 5th each month for the same reason.
What fifteen years of ₹1.5 lakh becomes
At the current 7.1%, with the full ₹1,50,000 deposited at the start of each financial year:
| Year | Deposited so far | Balance | Interest that year |
|---|---|---|---|
| 1 | ₹1,50,000 | ₹1,60,650 | ₹10,650 |
| 5 | ₹7,50,000 | ₹9,25,701 | ₹61,368 |
| 10 | ₹15,00,000 | ₹22,30,124 | ₹1,47,842 |
| 15 | ₹22,50,000 | ₹40,68,209 | ₹2,69,695 |
You deposit ₹22.5 lakh and receive ₹40.68 lakh. The ₹18.18 lakh of interest is tax free, which in the 30% bracket is equivalent to earning roughly ₹26 lakh in a taxable instrument.
Note the shape of the last column. The interest credited in year fifteen is more than twenty-five times that of year one, on an identical deposit. Nothing changed except the size of the balance it was added to.
The fifteen-year term is longer than fifteen years
The account matures after fifteen complete financial years from the year of opening, and it always ends on 31 March.
An account opened in June 2025 falls in FY 2025-26. Fifteen complete financial years after that ends on 31 March 2041, which is fifteen years and ten months after the account was opened. Opening in March rather than April costs almost nothing in elapsed time and gains a full year of the term.
There is a matching quirk at the other end: the deposit made in the final year still earns for that year, so the last contribution is not wasted.
Extending, and where the real money is
At maturity there are three choices.
Withdraw everything. The full balance is tax free and the account closes.
Extend for five years without contributing. The balance keeps earning interest and one withdrawal a year is allowed, of any amount. This turns the account into a tax-free income source, and it is the option most retirees should look at first.
Extend for five years with contributions. Deposits continue and up to 60% of the balance at the start of the block can be withdrawn across the five years.
The third option is where the arithmetic becomes striking, because the interest depends on the balance and the balance is now large:
| Total years | Balance at 7.1% |
|---|---|
| 15 | ₹40,68,209 |
| 20 | ₹66,58,288 |
| 25 | ₹1,03,08,015 |
The five years from twenty to twenty-five add ₹36.5 lakh on ₹7.5 lakh of fresh deposits. The last block earns more interest than the entire first fifteen years produced. A PPF account opened at 25 and extended twice reaches a crore of tax-free money by 50, on ₹12,500 a month.
The extension form must be submitted within one year of maturity. Miss the window and the account continues earning interest but no further contributions are accepted, which quietly removes the most valuable option.
Loans and partial withdrawals
Loan, available from the third to the sixth financial year, up to 25% of the balance two years prior. Interest is 1% above the PPF rate and it must be repaid within 36 months. It is cheap money, and because the loan is against your own balance there is no credit assessment.
Partial withdrawal, from the seventh financial year, once a year, up to 50% of the balance at the end of the fourth preceding year. This is a withdrawal rather than a loan and is not repaid.
Neither is taxable.
The limits, and the rules that bite
₹1,50,000 a year maximum, across all PPF accounts in your name and any minor account you operate. Deposits above the limit earn no interest and are simply returned.
₹500 a year minimum. Miss it and the account is discontinued: no loan, no withdrawal, and revival costs ₹50 a year of default plus the missed minimum.
One account per person. A second one, if discovered, is closed and earns no interest for the period it ran. Accounts held in a bank and a post office are still two accounts.
No NRIs. A resident who becomes an NRI may hold the account to maturity but cannot extend it.
Full protection from attachment under court order, which is unusual and worth knowing. A PPF balance cannot be seized to satisfy a decree of debt.
PPF against the alternatives
The exempt-exempt-exempt treatment is what makes PPF worth the fifteen-year lock-in, and it is worth being precise about how large that advantage is.
At 7.1% tax free, a PPF is equivalent to a taxable deposit paying 10.14% in the 30% bracket and 8.88% in the 20% bracket. No bank offers either. That gap, not the headline rate, is the product.
Against EPF, which pays more and is also exempt, PPF is the option available to the self-employed and to anyone wanting to contribute beyond their salary deduction. Against NPS, which allows equity exposure and an extra ₹50,000 deduction, PPF gives certainty where NPS gives a higher expected return and a compulsory annuity at the end. Against ELSS, which locks money for three years rather than fifteen, PPF trades return for a guarantee.
The honest weakness is the fifteen-year illiquidity and a rate the government resets quarterly, having cut it from 8.7% to 7.1% over a decade. Money you might need cannot go here, and the rate you model today is not promised.
The usual sensible allocation treats PPF as the fixed-income part of a long-term portfolio rather than the whole of it — the guaranteed floor under equity exposure held elsewhere. Used that way the lock-in stops being a cost, because that money was never going to be touched anyway.
What this calculator assumes
- The full year's deposit is made on or before 5 April, so it earns for the whole year.
- The interest rate is constant across the term. It is reset quarterly by the government and has ranged from 7.1% to 8.7% over the last decade, so run a lower rate as well.
- No withdrawals, loans or missed contributions.
- The projection continues past year fifteen only if you set a longer term, which models extension with contributions.
- Interest is compounded annually on the closing balance, matching the scheme rules.