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Pros and Cons of Public Provident Fund (PPF): A Complete Guide

Common investors, who typically lack a substantial investible surplus and possess limited risk tolerance, find small-savings instruments particularly beneficial. Among the currently available investment options in India, the public provident fund in India (commonly known as the PPF account) holds a prominent position. It continues to be a preferred choice due to its guarantee backed by the government. Tax deductions completely tax-free returns, and a reasonable rate of return on investment. Additionally, it offers the advantage of compounding. But like the coin case, there are also Pros and Cons of the Public Provident Fund.

However, investors who seek higher returns and are willing to take additional risks may consider other market-linked instruments. The Government of India offers the PPF in India as a savings scheme. The Government of India pays the interest on the account, which is determined every quarter. 

People are often looking into various investing opportunities when it comes to securing the days to come in the future. The Public Provident Fund (PPF) is a common investment option in India. The PPF is a long-term savings plan that offers competitive interest rates and tax advantages. However, there are also Pros and Cons of PPF which is important to know.

It is advisable to consult with a financial advisor or refer to the latest guidelines provided by the government about PPF accounts for the most accurate up-to-date information. In this blog, we will look at all the details of PPF and the Pros and Cons of PFF.

Now, let’s explore the Pros and Cons of PPF in more detail.

What is a PPF Account?

PPF in India is a common investment way to build up long-term savings. It provides a consistent return on your regular savings and is regarded as one of the safest investment choices. It takes 15 years of consistent savings to use this long-term investment tool. You can quickly figure out your optimal PPF contribution and its yield on maturation with the use of the PPF calculator. Also, look at the Pros and Cons of PPF before jumping into the decision.

How to Open a PPF Account?

Before jumping to the Pros and Cons of PPF, one should understand how to open a public provident fund in India:

  1. Visit the post office, nationalized banks, or major private banks like ICICI and Axis.
  2. Some banks, such as ICICI and Axis, also offer the option to open a PPF account online through net banking.
  3. Once the PPF account is opened, the bank or post office will issue a passbook similar to a bank passbook.
  4. The passbook serves as a record of all transactions, including subscriptions, interest, and withdrawals.
  5. In some cases, instead of a physical passbook, certain banks allow PPF entries to be viewed online.

Who can Invest in a Public Provident Fund in India?

Any resident of India, regardless of gender or occupation, is eligible to invest in a PPF account. Parents or legal guardians can also open PPF in India on behalf of their minor children. However, NRIs (Non-Resident Indians) are not eligible to open new PPFs in India. If an individual becomes an NRI after opening a public provident fund in India, they can continue the account until maturity.

Contributions regarding PPF in India:

  • The minimum annual contribution allowed in public provident funds in India is Rs. 500.
  • The maximum annual contribution is capped at Rs. 1.5 lakhs in the public provident fund in India, which includes contributions made for oneself and on behalf of a minor child.
  • Only 12 contributions are allowed in a year.

The objective of the PPF 

By offering an investment option with favorable interest rates and tax benefits, the Ministry of Finance aimed to encourage people to invest their minimal savings in a PPF account. Though there are many Pros and Cons of PPF, It guarantees investors the required security and confidentiality because it is a covered program by the Central Government.

Benefits of PPF 

In difficult circumstances, an effective financial plan will keep you afloat. PPF in India is one of those financial plans. Among the Pros and Cons of PPF, There are many benefits of PFF. Let’s look at a few benefits of PPF in India.

1. Investment with Guaranteed Returns and Low Risk

The risk of losing your money in the PPF in India is quite minimal because it is supported by the Indian government. The returns provided by the plan are also sufficient.

2. Tax Advantages

One of the main advantages of a PPF in India is reductions in taxes. It’s completely tax-free. Tax deductions under section 80C of the IT Act are one of the tax benefits of PPF in India.

3. Low-Cost Investment with Profitable Returns

When it comes to investing, Getting a profitable return is one of the major advantages of PPF in India. PPF accounts provide decent returns. Depending on your financial situation, you can open a PPF with as little as Rs. 500 or as much as Rs. 1,50,000. You have the option of making a single annual deposit or small monthly deposits into the PPF and getting good returns later.

4. Tenure

You can choose to take out the entire money after the 15-year locking period or, if you like, you can extend the tenure in 5-year increments at PPF in India.

Limitations of PPF 

The Public Provident Fund in India is a popular long-term savings and investment option. While there are various Pros and Cons of PPF, there are also some limitations within it. Here are a few limitations of the PPF in India.

1. Contribution Limit

The PPF in India has an annual contribution limit, which changes with time. According to the September 2021 report, the maximum amount that you can deposit in a PPF in a year is ₹1.5 lakh. This limit may restrict individuals who wish to invest higher amounts.

2. Lock-in Period

The PPF in India has a long lock-in period of 15 years. During this period, the funds deposited in the account cannot be withdrawn entirely. Partial withdrawals are allowed after the completion of a specified number of years, but the flexibility to access the entire amount is limited.

3. Fixed Interest Rate

The interest rate on the Public Provident fund in India is subject to change every year and the government sets it. While it provides stability. It also means that the returns may not always keep up with inflation or the prevailing market rates.

4. Liquidity

The liquidity of PPF is limited compared to other investment options. Premature closure of the account is generally not allowed except in specific cases such as critical medical expenses or higher education.

5. Limited Access to Funds

The PPF does not offer easy access to funds in case of urgent financial needs. It is a long-term savings instrument, and withdrawals are subject to specific conditions and restrictions.

Read More: Best Investment Plans for Beginners

Duration of Maturity of PPF

PPF has a 15-year lock-in period, although depending on the investor’s privacy, the lifetime of the fund may be expanded by up to one or more 5-year blocks or canceled once the account has matured. After the account reaches maturity, investors have choices to make

  • Complete money withdrawal from the PPF in India.
  • Allowing the agreement to continue without payments.
  • After the maturity period has expired, the defaulting action for this choice gets taken away automatically if the investor does nothing.
  • The maximum withdrawal allowed by term with a contribution, or adding additional funds, is 60% of the account balance during the five-year extension.
  • You can remove the deposit early, starting with the seventh financial year of the 15-year lock-in time frame. You can withdraw only up to 50% of the deposit.

Why Invest in PPF?

Though there are many Pros and Cons of PFF, it is important to know why you should invest in the Public Provident Fund in India. Let’s look at that

  1. You can start a PPF investment with as little as Rs.500. A one-time payment or monthly installments are viable options.
  2. From the seventh year of the investment, you may take a partial withdrawal from your PPF account.
  3. From the third year to the end of the sixth year, you can request a loan against the Public Provident Fund in India. The minimum interest rate charge is 1%.
  4. Once it reaches maturation, you have the option of expanding the PPF in sets of five years.
  5. Though there are Pros and Cons of PPF, Still it is a wonderful option to choose for a long-term investment. Even children are permitted to open PPF accounts.

Things to Consider Before Investing in PPF

There are many Pros and Cons of PPF and Investing should always begin with risk-free options. So, let’s look at some important things to consider before investing in PFF.

  • The 15-year lock-in time for PPF in India is a significant disadvantage. During the first six years, you cannot take away even a little portion of it.
  • By investing in PPF, you lose your liquidity because of the lock-in period.
  • The PPF rate of interest may not be able to safeguard your money invested in the case of high economic inflation.
  • Mutual funds, a market-linked product, are typically recognized to offer higher returns despite providing a constant rate of interest.
  • You can choose to only open a Public provident fund in India in your capacity. Minor can also open joint PPF accounts.

Read More: What is an Investment Decision

Pros and Cons of PPF

There is a distinctive combination of Pros and Cons of the Public Provident Fund (PPF). We’ll examine a few Pros and Cons of PPF below which will help in choosing your investment strategy wisely.

There are different Pros and Cons of PPF, like any other scheme. It is considered a little bit secure as the government of India is also involved in some cases. Now let’s delve into the Pros and Cons of PPF

The Pros of PPF in India are as Follows

  • It offers guaranteed profits as it is supported by the government at large.
  • Investors have the flexibility to make investments through a lump sum payment or monthly installments, with a minimum subscription of Rs. 500.
  • The deposited amount can be claimed for a refund under Section 80C of the Income Tax Filing Act.
  • Neither the interest earned nor the maturity amount is subject to taxes.
  • PPF account holders can avail of loans from the third to the sixth fiscal year.
  • Subscribers have the option to extend or terminate the tenure once the maturity period has passed.
  • Partial withdrawals are permitted only after seven years.
  • PPF accounts may be opened by housewives and minors, subject to certain conditions.

The Cons of PPF in India are as Follows

  • It has a lengthy lock-in period of 15 years.
  • PPF accounts cannot be opened by HUFs (Hindu Undivided Families) or NRIs (Non-Resident Indians).
  • The maximum amount that can be deposited into a PPF account is limited to Rs. 1.5 lakh.
  • PPF lacks liquidity, meaning there is limited flexibility for withdrawals or early access to funds.
Pros Cons
  • It is an attractive option for those who are concerned about taxes because both the interest produced and the total maturity amount are tax-exempt.
  • The PPF has a 15-year lock-in period during which only certain conditions permit partial withdrawals.
  • When compared to other fixed-income investments, the PPF offers comparatively high interest rates.
  • The maximum amount that you can invest in a PPF account each year is Rs. 1.5 lakh.
  • The PPF is a great tool for financial planning for the future because of its 15-year extended maturity period.
  • Interest rate changes can affect overall returns, especially when rates drop drastically throughout the investment period.
  • The Indian government supports the PPF, ensuring the security of the investment.
  • The PPF offers security, but it lacks liquidity


In India, the Public Provident Fund (PPF) is a prevalent savings plan that provides tax benefits, alluring interest rates, and long-term financial security. Although it offers stability and tax benefits, some investors may find the lock-in term and restricted liquidity. Though there are many Pros and Cons of PPF. It is viability as an investment option that ultimately depends on your financial objectives and risk tolerance.

There are different Pros and Cons of PPF that should be carefully considered. The pros of public provident funds in India include guaranteed profits supported by the government. Its flexibility in investment options, tax deductions, tax-free interest and maturity amount, availability of loans, and options for extension and partial withdrawals.

However, the cons of public provident funds in India include a lengthy lock-in period of 15 years. They have ineligibility for HUFs and NRIs, a maximum deposit limit of Rs. 1.5 lakh, and limited liquidity. Therefore, individuals should thoroughly assess the Pros and Cons of PPF, along with alternative options, before making a decision.

Pros and Cons of Public Provident Fund (PPF) – FAQs

What is the purpose of PPF?

Ans. The purpose of the Public Provident Fund (PPF) is to raise small deposits in the form of returns on investments.

Can I take PPF withdrawals annually?

Ans. After extending the period of PPF by a block of five years, you can only withdraw money up to the time of the extension. There is a single withdrawal limit.

What are the Pros and Cons of PPF?

Ans. The Pros and Cons of the Public Provident fund (PPF)include guaranteed profits backed by the government, tax deductions, and tax-free returns. However, it also has drawbacks such as a lengthy lock-in period of 15 years and limited liquidity for withdrawals.

How does a PPF in india offer guaranteed profits and tax benefits?

Ans. A PPF in india offers guaranteed profits as it is supported by the government. The interest earned and the maturity amount are tax-free, providing additional tax benefits to the account holder.

Among the Pros and Cons of PPF, what are the major drawbacks of PPF in india?

Ans. While a PPF in india offers guaranteed profits and tax benefits, it has some drawbacks. These include the long lock-in period of 15 years, which restricts early access to funds, and limited liquidity for withdrawals.

Explain the Pros and Cons of PPF in terms of compounding.

Ans. Among the different Pros and Cons of PPF, Compounding is a major advantage of a PPF account. The interest earned is reinvested, leading to exponential growth over time. However, the limitations of a PPF account include the maximum contribution limit of Rs. 1.5 lakhs per year. The second is the inability to open joint accounts or multiple accounts.

Are there any alternative investment options that offer higher returns and more flexibility compared to a PPF account?

Ans. Yes, there are alternative investment options such as tax-saving fixed deposits and ELSS. However, these alternatives also come with their own set of risks and considerations that investors should carefully evaluate.

How many times may I extend the PPF tenure?

Ans. After the maturity term ends, you are free to keep increasing the tenure of your PPF as many times as you choose.

How many PPF accounts can I generate?

Ans. You can generate one PPF account at a bank or post office.

How safe is making investments in the PPF?

Ans. The PPF is regarded as a safe investment because it is secured by the Indian Government.



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