Public Provident Fund or the PPF is a wonderful instrument. One can utilise it to generate a regular pension-like payment and can be particularly useful if one does not have pension from any source. There is a rule in PPF that allows anyone to utilise it that way.
Continue PPF after 15 years
A PPF account expires 15 years after it has been opened. But there is an option that the account holder can extend it by blocks of 5 years ie, it could be continued for 20, 25, 30, 35 or even 40 years and beyond. But the extensions have to be in blocks of 5 years.
There is another rule that states that one can withdraw once a year from the PPF account without any penal charges.
Herein lies the possibility to use a PPF like a source of regular pension.
PPF calculator
Using the PPF calculator, one can find out that if an investor saves Rs 1.5 lakh – maximum permissible under Section 80C of the Income Tax Act 1961, the account will have Rs 2,26,97,857 (2.26 crore) in it.
It means if a person starts investing at the age of 25, he/she can continue it for 35 years and get that amount when he/she stops working.
The only assumption is PPF continues to pay 7.1% interest throughout this period.
‘Pension’ in the 36th year
Now comes the real calculation. In the 36th year, the PPF account will generate an interest of 7.1% of Rs 2,26,97,857 = Rs 1,611,547.
If you divide this amount by 12, you get Rs 1,34,295. It indicates that you will get Rs 1.34 lakh a month.
Equally significant, this money is free from income tax since the entire proceeds of PPF (investment, interest and the maturity) amount is fax tree.
‘Pension’ in the 26th year
Even if one can invest for 25 years, there will be Rs 1,03,08,015 in the PPF account. Therefore, in the 26th year, it will generate an interest of 7.1% of this amount, or Rs 731,869.
It gives you an amount of Rs 60,989 every month. If you withdraw the interest generated once every year, the corpus of the PPF account will remain intact and will continue to provide it every year.
PPF calculator: Down the years, millions of Indians have utilised this long-term investment instrument as a powerful tool. It can be used to fetch tax-free pension too. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
