Public Provident Fund, or PPF, blesses patience handsomely. This can easily be a time-tested saying in India’s personal finance domain. Launched in 1968, it was designed as the common man’s tool to create a significant pool of money that can be used in the later years of one’s life.
In the days of the controlled economy in India, the PPF was formulated to reward disciplined investors. Despite the frenzy around the equity and mutual fund markets, the guaranteed-return instrument has retained its charm with a large number of investors. Let’s find out how it helps compound investments in the long term.
PPF calculator: 25 years as a benchmark
Let’s take 25 years as a very long-term period for investing and see what PPF can deliver. Suppose an investor puts Rs 100,000 in his/her PPF account every year. The total value of the investments will rise to Rs 68,72,010 (Rs 68.72 lakh) after 25 years.
Rs 1.1-1.2 & Rs 1.3-1.4 lakh a year
If this person raises the investment to Rs 1.10 lakh a year, the total value will increase to Rs 75,59,211 – interest of Rs 48,09,211 earned on Rs 27,50,000.
Once the investment hits Rs 1.2 lakh a year, the cumulative value after 25 years will reach Rs 82,46,412 including an interest income of Rs 52,46,412 on a principal of Rs 30 lakh.
Let someone invest Rs 1.3 lakh a year. He/she will earn a total maturity amount of Rs 89,33,613 lakh with a principal amount of Rs 32.5 lakh.
An annual investment of Rs 1.4 lakh a year would generate a total amount close to Rs 1 crore – Rs 96,20,814 crore. It would include interest component of Rs 61,20,814.
Rs 1.5 lakh a year
The total value at the end of 25 years can cross Rs 1 crore if one invests Rs 1.5 lakh a year for the entire duration. By the way, Rs 1.5 lakh is the maximum amount one can do in a PPF account. By the way, the current interest rate of 7.1% has been taken as a constant during the quarter of a century under consideration.
Incidentally, if one files income tax returns according to the old tax regime, the PPF still delivers full tax benefits – on the principal, interest earned and the total corpus at maturity – which adds to its effective returns.
A sovereign backing of returns, income tax benefits and virtually limitless tenure provide PPF all the turbochargers for safe and high returns for anyone with discipline of investing. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
