Employees Provident Fund, or EPF, was launched in 1952 and was India’s first social security for the workers and employees. Only 16 years later, Public Provident Fund, or PPF, was introduced to provide an instrument to create a corpus similar to EPF for any Indian, and hence the name public provident fund.
Besides creating a sizeable corpus, PPF also acts like a pension fund, which many people, even investors, are not aware of. However, investment strategists point out how this instrument can be exploited like a pension account.
PPF Income tax benefits
The enabling clause is one that enables the account holder to withdraw funds once a year. True to the nature of an E-E-E (exempt-exempt-exempt) account, this withdrawal is free from income tax too.
Suppose a person keeps investing in his/her PPF account much beyond the mandatory 15 years. Assume the person invests substantial amounts for 25, 30 or even 4 years or more. If someone has the patience to follow such a dogged investment regimen, one can easily run up a substantial corpus.
PPF calculator: Rs 44000 pension a month
Now this account bears an interest rate of 7.1%. Suppose a person has Rs 75 lakh in his/her PPF account. In that case, the account will add Rs 5,32,500 as interest. In other words, it means that if the account holder withdraws Rs 5,32,500 from the account in a year in one go, the principal does not diminish and if the interest rate remains the same, the account will keep producing the same interest every year.
If one divides Rs 5,32,500 by 12, one gets Rs 44,375. In other words, this PPF account will give the account holder a monthly income (read pension) of more than Rs 44,000.
Rs 60000 a month
If someone has Rs 1 crore in the PPF account, the interest accumulated every year will amount to Rs 7.1 lakh, which works out to Rs 59,166 a month.
It is clear from the above calculation that one has to invest in a PPF account for a number of years beyond the 15-year lock-in period to use it as a pension account. Unless the account has a substantial amount, the amount available as interest will not be significant.
Public Provident Fund, or PPF, was introduced in 1968 and has since served generations for building a sizeable corpus and even for providing a pension-like regular income. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
