Sovereign Guarantee — No Principal Loss
No principal loss risk — sovereign guarantee (Government of India). Public Provident Fund (PPF)s are issued by the Reserve Bank of India on behalf of the Government of India and carry the full faith and credit of the sovereign. Your principal is not subject to market, credit, or default risk at maturity — there is no scenario in which the principal amount can be lost. The intra-tenor risk band reflects potential mark-to-market volatility before maturity, not the redemption value you receive from the sovereign at the end of the tenor.
Risk rating on this instrument is 1 — Very Low on 14paisa.
Key Facts
What is the Public Provident Fund (PPF)?
The Public Provident Fund (PPF) is a 15-year government-backed long-term savings scheme run under the Government of India's small-savings programme. The current interest rate is 7.10% p.a., compounded annually on 31 March each year, and the entire instrument enjoys full EEE (exempt-exempt-exempt) tax status under the Income-tax Act. You can open a PPF account at any post office or at any of the ~26 authorised banks (SBI, HDFC, ICICI, Axis, etc.) and contribute up to ₹1.5 lakh per financial year — there is no upper age limit and a minor account can be opened through a guardian.
How compound annual interest is credited
PPF interest is calculated on the lowest balance in your account between the 5th day and the end of each month, and it compounds annually on 31 March. Crucially, the credited interest is not paid out — it is re-invested into the account and itself starts earning interest in subsequent years. This compounding-on-compounding mechanic is what makes a 15-year horizon materially better than shorter small-savings schemes: a ₹1.5L annual contribution at 7.10% compounds to roughly ₹40 lakh or more at maturity, with every rupee of interest fully tax-free.
₹500 minimum, ₹1.5 lakh maximum per year
The minimum annual deposit into a PPF account is ₹500 — and the rule is strict. You must deposit at least ₹500 in every financial year (you can split it into as many as 12 instalments of ₹500 to satisfy the floor), otherwise the account becomes inactive (discontinued) and stops earning interest until it is revived. The maximum you can contribute in a single financial year is ₹1.5 lakh; deposits above this ceiling do not earn any interest and are returned without interest. The ₹1.5L ceiling is also the Section 80C deduction cap, which means any contribution above the ceiling cannot be claimed as 80C either.
Sovereign guarantee — why the risk rating is "Very Low"
A PPF account is backed by the full faith and credit of the Government of India — the principal you deposit cannot be lost under any market, credit, or default scenario. Unlike bank FDs above ₹5 lakh (which exceed DICGC insurance cover) or AAA/AA corporate bonds (where recovery depends on the issuer's assets under IBC, 2016), PPF sits in the same sovereign-backed tier as Government Securities, T-Bills, and RBI Floating Rate Savings Bonds. This is why 14paisa assigns PPF a "Very Low" risk rating of 1 — there is no scenario in which the principal amount at maturity can be eroded.
EEE tax status — what "exempt-exempt-exempt" actually means
PPF's EEE tag is structured under three distinct sections of the Income-tax Act. First, your annual deposit qualifies for a Section 80C deduction — contributions up to the overall 80C ceiling of ₹1.5 lakh reduce your taxable income in the year of deposit. Second, the interest credited each year is exempt from tax in the year it accrues (unlike an FD, where annual interest is fully taxable at your marginal slab). Third, the entire maturity proceeds — principal plus compounded interest — are fully tax-free under Section 10(11) when the 15-year tenure ends. For investors in the 30% bracket, this can lift the post-tax return on a 7.10% PPF meaningfully above a taxable 7.5% bank FD once you net the credit-risk premium out of the FD.
Partial withdrawal from year 7 and loan against PPF from year 3
PPF's 15-year lock-in is not absolute. From the 3rd year onward, you can take a loan against your PPF balance — eligible amount is up to 25% of the balance at the end of the 2nd year preceding the year of loan application, charged at the prevailing PPF interest rate plus 1%. From the 7th year onward, you can make partial withdrawals — up to 50% of the balance at the end of the 4th year preceding the year of withdrawal (or 50% of the balance at end of the immediately preceding year, whichever is lower). Full withdrawal of the entire balance is permitted only at maturity — at the end of the 15-year tenor — though you can extend the account in 5-year blocks indefinitely, with full or partial withdrawal at the end of each block.
PPF vs SCSS, NSC, and FRB — when PPF wins
PPF wins over Senior Citizens Savings Scheme (SCSS) and National Savings Certificate (NSC) for any investor who is not yet 60 — SCSS is gated to age 60+, while PPF is open to any resident adult. PPF wins over the RBI Floating Rate Savings Bond any time EEE tax status matters: for an investor in the 30% bracket, a 7.10% PPF (fully tax-free) can deliver a meaningfully higher post-tax return than an 8.05% FRB (fully taxable at slab). PPF and Sukanya Samriddhi Yojana (SSY) are the only two EEE sovereign schemes broadly available — both are equally tax-efficient, but SSY is gated to a girl-child beneficiary under age 10. Compare all post office and government options on the Post Office Schemes tab before deciding.
Frequently Asked Questions
Is PPF principal guaranteed like Government Securities?
Yes. PPF is a sovereign-backed savings scheme run under the Government of India's small-savings programme. Your principal is not subject to market, credit, or default risk — at maturity RBI/India Post pays the full accumulated balance regardless of market conditions. This is why PPF carries a "Very Low" risk rating of 1 on 14paisa, in the same tier as the RBI Floating Rate Savings Bond and Treasury Bills.
Can NRI accounts continue contributing to an existing PPF?
Yes — FEMA rules permit an NRI to continue contributing to a PPF account that was opened while they were a resident Indian, and the account continues to earn interest at the prevailing PPF rate (currently 7.10% p.a.) with full EEE tax status until the original 15-year maturity. FEMA, however, prohibits opening a fresh PPF account after an individual acquires NRI status — once you are an NRI, no new PPF subscriptions are allowed. Pre-existing accounts opened as a resident continue under the original terms; mature balances must be credited to an NRO account (non-repatriable, subject to the USD 1 million per financial year NRO ceiling after tax).
What happens if I miss the ₹500 minimum deposit in any year?
The account becomes inactive (discontinued) and stops earning interest from the end of the year in which the minimum was missed, until it is revived. Revival is permitted by paying the ₹500 minimum back-deposit for each missed year plus a ₹50 penalty per missed year (per the prevailing small-savings rules). No further fresh deposits can be made and no interest accrues until the arrears are paid up. Once revived, interest accrues from the date of the revival payment forward — the missed years do not earn back-interest, so the opportunity cost is real. Authorised banks and post offices handle revival in a single visit; the form is the same as a regular deposit form plus an arrears-and-penalty calculation.