Kolkata: PPF, or Public Provident fund, was introduced in 1968 as a guaranteed-return long-term saving/investment instrument for the common man. Since then it earned the trust of generations, retaining much of it even as the country transitioned from a controlled-economy to a market-driven one and market-linked securities such as equities and mutual fund began offering high inflation-beating returns against which PPF stood no chance of competing on returns.
Even bank FDs — the repository of trust of millions of risk-averse Indians stole a march over PPF returns. But with the interest rate cycle gradually set to move lower and lower, PPF with its 7.1 returns could gradually regain a bit of its lost shine. Let’s have a look at this evergreen instrument.
PPF allows very long term compounding
One of the primary advantages of PPF is that it allows investment for a very long-term. The initial investment period of PPF is 15 years. However, every investor has the benefit of extending the investment by blocks of five years beyond the first 15. One can invest for 20, 25, 30, or any multiple of 5 years.
Check the PPF calculator
One can invest a maximum amount of Rs 1.5 lakh a year, or Rs 12,500 a month in PPF. The online PPF calculator shows that if one invests Rs 12,500 a month, the PPF account will generate a total maturity amount of Rs 39,44,599 — a principal component of Rs 22,50,000 and an interest component of Rs 16,94,599. However, there are two qualifying points here. The returns are actually a bit higher since the entire proceeds is tax free (if you are in the old tax regime).
But see, how the maturity amount grows with blocks of five years beyond the 15. If you invest for 20 years — Rs 1.5 lakh a year — the maturity amounts to Rs 66,58,288, which means an interest of 36,58,288 on a nominal investment of Rs 30,00,000. And investing it quietly for 25 years would take your final corpus beyond Rs 1 crore — actually to Rs 1,03,08,015 (provided the interest rate stays at 7.1%). The returns will be Rs 65,58,015 on a nominal investment of Rs 37,50,000.
Highest security
Another point of investment in PPF is complete peace of the mind. Since PPF enjoys sovereign backing, it offers complete safety of the maturity amount. Also, one can withdraw money from the kitty once a year which is tax free too. This feature is similar to a pension fund and can be utilized by anyone who wants to access funds at a short notice. If you apply to a bank where your PPF account is maintained, funds are transferred within the same day to the designated savings bank account. One has to fill up a simple form and affix a revenue stamp.
The interest rate cycle in India has started moving south and according to the RBI governor, with inflation in control, the down cycle is expected to be durable. In this economic climate, the utility of PPF can become prominent once again. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
