Public Provident Fund, aka PPF, is a marvellous instrument for investment. Apart from generating a completely secure corpus in the long term, one can also milk it to extract regular pension. This is specially useful for senior citizens. The unfortunate part is that not many are aware of this facility embedded in PPF.
PPF withdrawal rules
The first trick is to continue PPF after 15 years to accumulate quite a sum. Everyone knows that a PPF account expires 15 years after it is opened. But the accountholder can 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.
One has to take help of a rule that stipulates that a withdrawal can be made once a year. It comes without any penal charges. Exactly here lies the possibility to use a PPF like a source of regular pension.
PPF calculator
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%, the amount accumulated at the age of 60 years is Rs 1,54,50,911 or Rs 1.54 crore.
Now, on the 36th year this corpus will generate an interest of Rs 1,097014 (Rs 10.97 lakh). Since one can withdraw once a year, the investor can jolly well take out this amount without reducing the initial corpus. Now Rs 10.97 lakh translates to Rs 91,417 a month on average. In other words, it is equivalent to a pension of more than Rs 91,000 a month.
Big pension equivalent
If one can continue investment for 35 years an even bigger fortune awaits him/her. The corpus after the end of 35 years would become Rs 2,26,97,857. Just as in the above scenario, in the 36th year, the PPF account will generate an interest of 7.1% of this pool which would amount to Rs 1,611,547.
Dividing If you divide this amount by 12, one gets Rs 1,34,295. In other words, it translates into an amount of Rs 1.34 lakh a month. It is free from Income Tax Act 1961.
PPF calculator and interest rate: Tax-free pension is a coveted proposition for many. You can use this trusted instrument to deliver you precisely that. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
