For long-term investors seeking to get returns that are assured and tax-free, a government-backed investment option known as the Public Provident Fund (PPF) belongs to the post office’s small savings scheme category and is one of the popular options. The government modifies the PPF interest on a quarterly basis and currently, the scheme offers 7.1% (compounded yearly) for the current quarter, which is higher than the fixed deposit rates of major banks. Owing to the PPF’s maturity period of 15 years, excluding the financial year of account establishment, it is considered a long-term investment. One can accumulate ₹1 Cr in tax-free income through PPF contributions at maturity, but one must be aware of the investment amount.
PPF Calculator
We can estimate an interest rate of 7.1% over the subsequent 15 years in order to build a corpus of ₹1 Cr at maturity. An individual can maintain a total invested amount of ₹63 lacs in his or her PPF account by investing ₹35,000 per month for a period of 15 years, according to calculations provided by ETMoney, for which he or she will receive ₹47.45 lacs as interest income, and the total amount will be approximately ₹1.10 Cr at maturity.
Let’s now say that the same investor wants to maintain his or her PPF account with monthly payments in order to get a ₹2 Cr maturity payout. With this example in mind, one can extend his or her PPF account at maturity without withdrawal for additional blocks of 5 years and so on within one year of maturity. The account holder can extend the account for an additional 5 years upon account maturity, bringing the total investment term to 20 years. Taking this into account, the account holder must continue to contribute ₹40,000 per month for an additional 5 years, which will result in a total investment of ₹96 Lacs, interest income of ₹1.11 Cr, and a total maturity amount of ₹2.07 Cr at maturity after 20 years from the date of account opening.
Key takeaways of PPF
The first and most cherished feature of PPF is that it keeps its exempt-exempt-exempt (EEE) status, meaning that your investment, returns, and maturity are all tax-free. By investing a minimum of INR 500 and a maximum of INR 1,50,000 in a financial year, a single adult resident Indian or a guardian on behalf of a minor or person of unsound mind can create a PPF account. PPF interest is subject to the quarterly announcements made by the Ministry of Finance, and the interest is determined for the calendar month on the lowest amount in the account between the fifth day’s closing and the end of the month.
After five years—with the exception of the year the account was opened—a subscriber can withdraw up to 50% of the account balance once within a financial year. After five years from the end of the year the account was established, premature closure is permitted under certain emergency circumstances. Only after one year has passed after the end of the fiscal year in which the initial subscription was made is it possible to take out a loan against a PPF account. When the PPF account reaches maturity, the account holder has three options: withdraw the maturity payout, keep the maturity value in the account without making any deposit, or extend the account for an additional block of five years.