The Public Provident Fund (PPF) is a popular long-term investment option in India, primarily known for its attractive tax-saving benefits. Established by the National Savings Institute under the Ministry of Finance in 1968, PPF aims to mobilise small savings and provide returns on investment along with income tax benefits. It can also allow a user to create a retirement corpus of Rs 1 crore in 25 years, with a steady and regular investment in the scheme. The investment in PPF range from Rs 500 to Rs 1.5 lakh.
The PPF becomes an important investment and tax-saving tool for salaried as well as other individuals who are looking to maximise gains from their investment. Check the PPF calculator.
Maturity period: 15 years (extendable in blocks of 5 years)
The scheme comes with a maturity period of 15 years, where the investment has to be steady if an individual has to accumulate a significant amount.
After 15 years, an individual can either close the PPF account or extend it. The scheme has a provision of extension in the blocks of five years.
The rate of interest for PPF
The interest rate on PPF is set by the government and is revised quarterly. It typically ranges between 7-8% per annum and is compounded annually.
Currently, the PPF has a fixed rate of interest of 7.1 per cent.
Tax benefits: EEE (Exempt-Exempt-Exempt) under Section 80C
PPF offers a triple exemption benefit (EEE - Exempt, Exempt, Exempt) where the principal invested, the interest earned, and the maturity proceeds are all exempt from tax under Section 80C of the Income Tax Act.
Further, being a government-backed scheme, PPF is considered a highly secure investment with no risk of default.
How to create Rs 1 crore corpus from PPF
The PPF, like many other financial schemes, interest is credited at the end of a financial year. To reap maximum benefit, it is advisable to invest Rs 1,50,000 (or Rs 12,500 per month) in the PPF account at the start of a financial year (on April 1). This will allow maximum interest to be credited to an individual's account.
Going by the current interest rate, Rs 10,650 will be credited to the PPF account as interest on March 31 next year (or current financial year), which will make your account balance Rs 1,60,650 on the first day of the next financial year.
This amount will become Rs 3,10,650 when the Rs 1,50,000 deposited for next year's investment is added. Now, at the end of that financial year, the PPF account holder will get interest on Rs 3,10,650 instead of Rs 1,50,000, which will be Rs 22,056.
If the individual keeps depositing Rs 1,50,000 in the PPF account every year on April 1, on completion of 15 years of maturity, the total investment will be Rs 22.50 lakh, and your return will be Rs 40.68 lakh, of which Rs 18.18 lakh will come as interest.
Instead of closing the PPF account in 15 years, if the individual extends for five years, Rs 30 lakh investment will grow into Rs 66.58 lakh, of which Rs 36.58 lakh will only be the interest.
After another extension (total duration 25 years), the investment will be Rs 37.50 lakh, interest will be Rs 65.58 lakh, and the total return will be Rs 1.03 crore.
No tax to be paid on maturity
The biggest feature of this scheme is that the individual will not have to pay any kind of tax on the amount. Another interesting fact is that on the Rs 1.5 lakh investment made every year, the PPF user would have saved about Rs 11,70,000 in 25 years at the rate of Rs 46,800 every year.
So, if an individual starts investing at the age of 30, a corpus of Rs 1 crore will be ready before retirement.
However, an important thing to note her is that the interest rate given on PPF account is revised by the government every quarter. So, if the interest rate increases or decreases, the total amount received may also increase or decrease.
