The Public Provident Fund (PPF) is a government-backed savings scheme that offers financial security and tax benefits. With a maturity period of 15 years, it allows for extensions in blocks of 5 years. This long-term investment option is ideal for building a substantial corpus and enjoying tax-free income.
Investment Limits and Interest Rate
In the PPF scheme, you can invest a minimum of ₹500 and a maximum of ₹1.5 lakh per financial year. Currently, the interest rate stands at 7.1% per annum, compounded annually, which significantly boosts your savings. Both the investment and the interest earned are tax-free, making PPF an attractive investment option.
How to Build a ₹1 Crore Fund?
By following the 15+5+5 formula, you can accumulate a fund of ₹1 crore over 25 years by investing ₹1.5 lakh annually. Here’s how it works:
- Initial Investment: Suppose for the first 15 years you invest ₹1.5 lakh each year.
- Total Investment Over 15 Years: Your total investment will amount to ₹22.5 lakh.
- Maturity Amount After 15 Years: At maturity, your corpus will grow to approximately ₹40,68,209, yielding an interest benefit of about ₹18,18,209.
After the initial 15 years, you can extend your PPF account for two additional blocks of 5 years each while continuing to invest ₹1.5 lakh annually. By the end of 25 years:
- Total Investment Over 25 Years: Your total investment will be ₹37.5 lakh.
- Total Corpus After 25 Years: You can expect your corpus to reach around ₹1.03 crore, with an interest benefit of approximately ₹65,58,015.
Tax-Free Income
With a fund of ₹1 crore at an annual interest rate of 7.1%, you could earn up to ₹7.31 lakh per year in income, which is completely tax-free. This translates to a monthly income of around ₹60,000, providing significant financial support.
What Are The Options After Maturity
After the maturity period, you can extend your PPF account for another 5 years. If you continue investing during this extension, you will continue to earn interest on your deposits. Alternatively, you can choose not to invest further and still earn interest on your accumulated balance.
Conclusion
The Public Provident Fund is an excellent way to secure your financial future while enjoying tax benefits. By adhering to the 15+5+5 formula, you can effectively build a substantial corpus over time and enjoy tax-free income during your retirement years.
Disclaimer: This article is based on information available as of January 9, 2025. Please consult with a financial advisor for personalized advice.
