New Delhi: If you are not a government employee, or never cared to open a National Pension System (NPS) account, don’t worry. If you have a Public Provident Fund (PPF) account, it can work as a pension account in your old age. Just keep investing in it to multiply the corpus to the maximum possible extent.
PPF extension rules and benefits
The trick is to continue a PPF account well beyond the lock-in period of 15 years to accumulate a big amount. A PPF account expires 15 years after it is opened. However, the accountholder can easily extend it beyond that period by blocks of 5 years. In other words, it can be stretched to 20, 25, 30, 35 or even 40 years and beyond. The extensions have to be in blocks of 5 years. The longer one extends it, the higher the amount accumulated.
PPF annual withdrawal rules
The enabling feature of PPF is that one can make one withdrawal per year. There is no penal charge and if the amount withdrawn is less than or even equal to the interest that is generated in the account in a year, the principal remains intact. This annual withdrawal can double up as a regular pension.
How to maximise PPF returns
Think of an investor who invests Rs 1.5 lakh in a PPF account every year for 30 years. It is not difficult for someone who starts investing even at the mature age of 30 years. Assuming that the rate of interest is 7.1 per cent, the amount accumulated at the age of 60 years is Rs 1,54,50,911 or Rs 1.54 crore.
Let’s consider what happens in the 36th year: The amount of Rs 1,54,50,911 will generate an interest of Rs 1,097014 or Rs 10.97 lakh, assuming the rate of interest remains at 7.1 per cent.
The investor can withdraw this amount and leave the principal initial amount intact. Rs 10.97 lakh works out to Rs 91,417 per month, which is the same as a monthly pension of Rs 91,000. If one can think of investing significant amounts in PPF, it can provide big amounts every year as pension only from this source. Since this amount will be tax-free, the money will not attract income tax.
PPF is a tax-free savings instrument that offers 7.1 per cent annual returns. Here’s how to use this savings scheme to meet your expenses in your old age if you do not have any pension. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
