Public Provident Fund (PPF) — a retirement focused investment — helps in earning inflation beating returns in the long term. Periodic investments in this avenue for a long-term can do the trick with power of compounding and help you actually earn more than Rs 1 crore.
Let's see how?
PPF interest is revised every quarter by the government. For the current quarter, PPF will fetch 7.1 percent return.
Now, if we assume that the present interest rate of 7.1 percent on PPF remains constant in the long term and investors regularly park money for 25 years, utilising the maximum limits of investments allowed in one financial year, he/she can earn a hefty amount.
Longer the money stays invested here, the quicker it grows.
According to calculations provided by Groww — an investment platform., if someone starts investing Rs 12,500 per month (the maximum monthly investment that can be done in PPF) and continues the PPF account till 15 years, he/she may earn over Rs 43 lakh at the time of maturity (in accordance with the current 7.1 percent rate of interest.)
Now, the same account can be extended within one year of maturity for further five years and so on to earn more benefits. After investing Rs 1.5 lakh per year for 20 years ( first extension) at 7.1 percent, the PPF account balance will be about Rs 73 lakh.
|Monthly investment||Tenure||Maturity amount|
|Rs 12,500 at 7.1% interest rate||15 years||Rs 43 lakh|
|Rs 12,500 at 7.1% interest rate||20 years||Rs 73 lakh|
|Rs 12,500 at 7.1% interest rate||25 years||Rs 1,16,60,769|
Now, in order to get Rs 1 crore, the investor needs to extend the account for further five years (second extension). After investing Rs 1.5 lakh per year for 25 years at 7.1 percent, the PPF account balance will be Rs 1,16,60,769 (which is more than 1 crore).
Now, this means that you need patience along with proper investing to do the magic.
More about PPF
PPF offers an Exempt-Exempt-Exempt (EEE) tax status and comes with a lock-in period of 15 years. The maturity amount and the overall interest earned during the period of investment are tax-free.
It is best-suited for various conservative investors who like fixed-income investment better. This investment enjoys a tax deduction of up to Rs. 1.5 lakh under section 80C of the Income Tax Act, 1961.
First Published: Aug 5, 2022 8:23 AM IST