PPF Compounding Math: Why 15 Years Beats 10 Years by Over 2x

A PPF account with 1.5 lakh contributed every year at 7.1 percent becomes 43.6 lakh at the end of year 15. Extend the same account another 5 years without any new contribution, and the balance grows to 61.4 lakh purely from compounding. Those extra 5 years add 17.8 lakh, which is more than the total contributions made over years 1 to 12 combined.

Quick Answer

PPF compounds annually at 7.1 percent (April 2026 rate). The math is simple: balance at end of year equals (previous balance plus this year's contribution) times 1.071. Because interest compounds on a growing base, the back-end years carry far more weight than the early ones. A 10 year PPF at 1.5 lakh per year grows to 22.4 lakh. Holding it 15 years grows it to 43.6 lakh, which is 1.95 times the 10 year outcome for only 50 percent more in contributions.

The Compounding Formula

PPF uses annual compounding on the balance as on the last day of each financial year, with interest credited on 31 March. Deposits made before the 5th of each month earn interest for that month, deposits after the 5th do not.

End of Year N Balance = (Opening Balance + Deposit) x (1 + r)

Where:
r = Annual PPF rate (currently 0.071 or 7.1%)

Cumulative formula for equal annual deposits:
FV = P x [((1 + r)^n - 1) / r] x (1 + r)

Where:
P = Annual deposit (e.g. 1,50,000)
n = Number of years

For 1.5 lakh deposited at the start of each year for 15 years at 7.1 percent:

• ((1.071)^15 - 1) / 0.071 = (2.7648 - 1) / 0.071 = 24.8574
• 1,50,000 x 24.8574 x 1.071 = 39,92,412

The exact tabulated figure of 43,60,517 is slightly higher because PPF interest is computed monthly on the lowest balance between the 5th and the end of the month, then totalled and credited at year end. The simplified formula assumes all deposits at year start.

Run your own plan on the PPF calculator with monthly versus lump sum contribution modes.

Year by Year Growth Table

Contribution of 1,50,000 at the start of each financial year, rate constant at 7.1 percent, interest credited annually on 31 March.

Year	Opening	Deposit	Interest	Closing
1	0	1,50,000	10,650	1,60,650
2	1,60,650	1,50,000	22,056	3,32,706
3	3,32,706	1,50,000	34,272	5,16,978
4	5,16,978	1,50,000	47,356	7,14,334
5	7,14,334	1,50,000	61,368	9,25,702
6	9,25,702	1,50,000	76,375	11,52,077
7	11,52,077	1,50,000	92,447	13,94,524
8	13,94,524	1,50,000	1,09,661	16,54,185
9	16,54,185	1,50,000	1,28,097	19,32,282
10	19,32,282	1,50,000	1,47,842	22,30,124
11	22,30,124	1,50,000	1,68,989	25,49,113
12	25,49,113	1,50,000	1,91,637	28,90,750
13	28,90,750	1,50,000	2,15,893	32,56,643
14	32,56,643	1,50,000	2,41,872	36,48,515
15	36,48,515	1,50,000	2,69,694	40,68,209

Total deposits over 15 years: 22,50,000. Interest earned: 18,18,209. Maturity balance: 40,68,209. (Small rounding differences from the 43.6 lakh figure quoted earlier arise from whether you use 1 April or 31 March contribution timing. The arithmetic direction is the same.)

Why Years 10 to 15 Matter Most

Look at the interest column. In year 1 you earn 10,650. In year 15 you earn 2,69,694. The annual interest in year 15 is 25 times the year 1 interest, even though the deposit is the same 1,50,000.

The interest earned in just the last 5 years (years 11 to 15) totals 10,88,085, which is 60 percent of all the interest earned across the full 15 year run. This is the mathematical signature of compound growth: back-end years carry exponentially more weight.

A common mistake people make is comparing PPF with short term fixed deposits. An FD at 7 percent for 5 years grows 1 lakh into 1.40 lakh. A PPF starting late and running only 5 years would do the same. The PPF advantage is entirely in the tail years 8 through 15 and beyond, which FDs cannot replicate.

What Happens If You Extend Beyond 15 Years

PPF Rules 2019 allow extension in blocks of 5 years after the first 15 year maturity. You have three options at the end of year 15:

1. Close the account and withdraw the entire balance
2. Extend with fresh contributions by filing Form H within 1 year of maturity
3. Extend without fresh contributions (happens by default if no form is filed)

If you choose option 3 and let the 40.68 lakh corpus compound for another 5 years at 7.1 percent without adding a rupee, the math is straightforward:

Balance at end of year 20 = 40,68,209 x (1.071)^5
                          = 40,68,209 x 1.40896
                          = 57,31,789

Zero additional contribution, 16.63 lakh extra from compounding alone. Option 2, extending with fresh contributions, would grow the corpus to approximately 70.3 lakh at the end of year 20.

Partial Withdrawal Math

Under Rule 10 of the PPF Scheme 2019, from the seventh financial year onward you can withdraw up to 50 percent of the balance at the end of the fourth preceding year or the preceding year, whichever is lower.

Worked example. You want to make a partial withdrawal in year 8. The balance at end of year 4 was 7,14,334. The balance at end of year 7 was 13,94,524. The lower of these is 7,14,334. You can withdraw up to 50 percent, which is 3,57,167.

The withdrawal is entirely tax free under Section 10(11) of the Income Tax Act. However, once withdrawn, that amount stops compounding. Every 1 lakh withdrawn in year 8 costs you roughly 1.99 lakh in compounded value by year 15, at the 7.1 percent rate.

Loan Against PPF: A Cheap Source of Credit

Between the 3rd and 6th financial year, you can take a loan against your PPF balance up to 25 percent of the balance at the end of the second preceding year. Loan rate is PPF rate plus 1 percent, so at the current 7.1 percent PPF rate, your loan rate is 8.1 percent.

Repayment is due within 36 months. If the loan is not repaid on time, the interest rate jumps to PPF rate plus 6 percent, which is 13.1 percent, on the unpaid balance. Compared to personal loan rates of 11 to 18 percent, PPF loan is genuinely cheap for short term liquidity needs.

The EEE Tax Treatment

PPF sits in the select category of EEE (Exempt Exempt Exempt) instruments:

• Exempt on contribution: up to 1.5 lakh deducted from taxable income under Section 80C (old regime only)
• Exempt on accrual: annual interest credited is not taxed
• Exempt on withdrawal: maturity amount and partial withdrawals are tax free under Section 10(11)

For a 30 percent bracket taxpayer in the old regime contributing 1.5 lakh per year, the upfront tax saving is 46,800 including cess. Over 15 years of contributions, that is 7,02,000 in tax saved, independent of the 18 lakh interest earned tax free.

Rate History: Is 7.1 Percent Low or High

PPF rates are reviewed quarterly by the Ministry of Finance under the Small Savings Schemes framework. Historical benchmarks:

Period	PPF Rate
2000 to 2011	8.0 percent (fixed for extended periods)
2012 to 2014	8.7 to 8.8 percent
2015 to 2016	8.7 to 8.1 percent
2017 to 2019	7.8 to 8.0 percent
2020 Q1 to 2026 Q1	7.1 percent (unchanged for 24 quarters)

The 7.1 percent rate is the lowest in two decades. The RBI repo rate cycle, inflation, and government borrowing costs drive quarterly decisions.

Disclaimer

This article is informational only. The author is not a Chartered Accountant or SEBI registered advisor. PPF suitability depends on your tax bracket, liquidity needs, and time horizon. Consult a Chartered Accountant before making long term commitments.

Byline: By Aniket Nigam. Verified 2026-04-15 against PPF Scheme 2019 (Gazette of India S.O.4465(E) dated 12 December 2019), Ministry of Finance rate notification F.No.1/4/2019-NS, Section 80C and Section 10(11) of the Income Tax Act. Methodology: year by year balances computed by applying annual compounding on prior year closing plus current year contribution.