At 6.4% interest rate does it still make sense to invest in PPF?

Published: March 31, 2021 at 10:32 pm

PPF interest rate has been “slashed” from 7.1% to 6.4% for the second quarter of 2021. This has come as a big shock to retail investors who, at the least, expected rates to remain the same. The rate for Sukanya Samridhhi Yojana has also be reduced from  7.6% to 6.9%. Does it still make sense to invest in PPF and SSY?

Update: Govt has reversed the rate cut but the arguments made here remain unchanged.

Historical rates of PPF and SSY can be found here: PPF Interest Rate History 1968 to Present and Sukanya Samriddhi Yojana Interest Rate History 2015 to Present

As usual investment decisions cannot be made on the basis of rates alone. It depends on multiple factors, but here is a crude classification. Here I am referring to investors heavily dependent on PPF or EPF or VPF or SSY. Yes, it is only a matter of time before EPF/VPF rates go down. We have already explained why it is a mistake to maximise PPF investments: Want to invest Rs. 1.5 Lakh in PPF this April? Don’t be in a hurry!

Less than 35 years of age: Use this as a wake-up call to first increase equity exposure in your portfolios. At least 40-50% equity is necessary. You can build this by investing less in PPF/VPF. Once this is done, you can also consider including exposure to long-term gilt mutual funds. They come with their own bag of risks but stand a good chance to outperform PPF. See; PPF vs Gilt mutual funds: Which has done better over 15 years? You can increase investments in gilt funds in future.


35-40 years of age: You have one last chance to implement the above suggestion, but the time available to get used to market risks is too short. So get professional help from a SEBI  registered fee-only planner immediately. You will have to bite the bullet, reduced or even stop investments in PPF (other than the min reqd) and do this. Otherwise, you are looking at a guaranteed failure to beat inflation after inflation.

For older investors, particularly corporate employees retirement would be around the corner. If they have a debt-heavy portfolio, they have no choice but to continue investing as much as possible in EPF and PPF. It would be better if such individuals seriously start considering additional income sources from their skillsets. Without equity, only higher-income can beat inflation.

Should I use NPS instead of PPF? Please do not! NPS comes with harsh liquidity conditions (80% locked into a pension plan for exits before 60).  You can get the same benefits (and risks) of NPS with a gilt fund.

Should I buy endowment policies instead of PPF? That would be jumping from the frying pan into the fire. The guaranteed to not beat inflation tag will still remain.

Will PPF rates keep falling? No. They could and probably will go back up in the near future, but over the long term, the rate has to fall and will fall. This is the sad reality of not participating in market risk. By only contributing as a consumer in the “Indian growth” story and not as an investor.

To summarise, older investors should continue investing in PPF but must look for alternative income sources with their skills. They should not consider debt with higher rates or hybrid mutul funds. The consequences of doing so without capital market experience can be disastrous.

For younger investors, this is a wake-up call. Answer it; embrace market risk to stand a chance against inflation

Do share if you found this useful

We now publish both equity fund and debt fund (+ hybrid fund) screeners each month!
Use our Robo-advisory Excel Template for a start-to-finish financial plan! Now with a new demo video!  More than 415 investors and advisors use this!
Unlock the secrets of successful financial advisors and entrepreneurs with our new course!
My new book for kids: “Chinchu gets a superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both boy and girl version covers of Chinchu gets a superpower.
Most investor problems can be traced to a lack of informed decision making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, if we had to groom one ability in our children that is key not only to money management and investing but for any aspect of life, what would it be? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parent’s plan for it and teach him several key ideas of decision making and money management is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Did you know? We have more than 1000+ videos on YouTube to explore! Join our YouTube Community!

Join our courses in exclusive Facebook Groups!

  • 550+ members are now part of our new course: How to get people to pay for your skills! (watch 1st lecture for free). Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show how to achieve by showcasing your skills and building a community that trusts you and pays you!
  • Goal-based portfolio management! Join 2220+ members and get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free!  One-time payment of Rs. 3000 only. No recurring fees! Life-long access to videos (10+ hours content)  in an exclusive Facebook Group! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.

Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
We publish mutual fund screeners and momentum, low volatility stock screeners .every month.
About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations based on money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association, IIST Alumni Association. For speaking engagements, write to pattu [at] freefincal [dot] com
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions, seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)
Free android apps