New Delhi, Sept. 1 -- PPF currently offers an interest rate of 7.1% a year. But for investors who can claim a tax deduction on their contribution, the effective return can be higher than the headline rate. The difference comes from a benefit that is often left out when PPF returns are compared with other investments. This is the tax saved on the contribution.

For an investor under the old tax regime, in the 30% tax bracket and with the full Section 80C limit available, this tax benefit can materially change the return calculation. Here is how the numbers work.

Suppose an investor puts Rs.1.5 lakh into PPF every year for 15 years. The total contribution over the period is Rs.22.5 lakh.

If the PPF interest rate remains at 7.1% throughout...