If you do not want to take the risk of fluctuations in the share market or mutual funds and want to add a huge amount while remaining completely safe, then ‘Public Provident Fund’ i.e. PPF is the best long-term saving option for you. Since it is run by the Central Government, investment in it is completely safe. Apart from this, the interest received in PPF is completely tax-free and under Section 80C of the Income Tax Act, 1961, you also get the benefit of tax exemption on investment up to ₹ 1.5 lakh.
Since only a maximum of ₹ 1.5 lakh can be deposited in a PPF account within a financial year, many savvy investors often want to know how much time will it take to build a huge corpus of ₹ 1.54 crore while staying within this limit?
The simple answer depends on how much money you are putting in every year and how long you are letting it compound. Due to the ‘compounding interest’ available in PPF, after a time your money starts growing very rapidly.
Government of India currently on PPF deposits 7.1 percent per year (7.1% pa) Is paying interest at the rate of Rs. As per the rules, interest is calculated on the minimum balance between 5th to 30th of every month and the interest for the entire year is credited to your account at the end of every financial year i.e. on 31st March.
The basic lock-in or maturity period of PPF account is 15 years. However, as per the rules, any investor can extend his account as many times as he wants (unlimited times) after 15 years in a block of 5 years. Let us understand with maths and calculations whether the target of ₹1.54 crore can be achieved in 15 or 20 years (assuming the interest rate remains constant at 7.1% throughout the period and the investment is made in lump sum before April 5 every year):
Position at 15 years maturity: If you deposit ₹1.5 lakh every year for 15 years, the total investment from your pocket will be ₹22,50,000. You will get interest of ₹ 18,18,209 on this. That means after 15 years it is in your hands Approximately ₹40.68 lakh Funds will come.
Status after 20 years (an extension): If you take an extension of 5 years and continue investing ₹1.5 lakh annually, your total fund after 20 years will be ₹66.58 lakh Is able to reach.
From this calculation it becomes completely clear that it is not possible to create a fund of ₹ 1.54 crore by investing maximum in a period of 15 years, let alone 20 years.
If you want to touch the magic figure of full ₹ 1.54 crore through PPF, then you should Total investment for 30 years Will have to do. You can look at it like ‘retirement planning’. Suppose an investor starts investing the entire ₹1.5 lakh every financial year from the age of 30 and continues till the age of 60, he can easily become the owner of ₹1.54 crore. For this he has to fulfill the conditions and procedure given below:
Extension will have to be taken 3 times: After the end of the original tenure of 15 years, the investor will have to take a total of 3 extensions (with investment) of 5 years each, making the total investment tenure 30 years.
The deadline of 5th April is important: To avail maximum benefit of PPF interest, it is very important that you invest at the beginning of every financial year, i.e. before 5th April Deposit the entire amount of ₹ 1.5 lakh in lump sum.
Fixed interest rate: During this entire 30 year long period, the interest rate provided by the government should remain on an average at 7.1% or above.
