The Public Provident Fund (PPF) is a long-term savings scheme backed by the government that assures guaranteed returns to its investors. One of the oldest tools of investment, PPF allows investors to contribute between Rs 500 and Rs 1.5 lakh in a financial year and earn interest.
Two factors set it apart from market-linked investment tools— PPF has a 15-year lock-in period, which can be extended further in blocks of 5 years each. Moreover, PPF investments are fully tax-free. This means that investors can not only claim deductions on PPF investments, but the maturity corpus of the PPF is also tax-free.
The PPF interest rate, currently at 7.1%, is compounded annually. The interest rate for the scheme is reviewed and fixed by the government each quarter. One can invest in PPF either monthly or yearly, depending on their investment goals. Investments made in the PPF scheme are deductible under section 80C of the income tax laws, but only under the old tax regime.
Building PPF corpus with Rs 5,000 and Rs 10,000 investment per month
Let's see how these returns play out over a 15-year period for small monthly contributions of Rs 5,000 and Rs 10,000.
Scenario 1
Time period: 15 years
Monthly contribution: Rs 5,000
Investment amount: Rs 9,00,000
Interest earned at 7.1%: Rs 6,77,840
Final corpus: Rs 15,77,840
Scenario 2
Time period: 15 years
Monthly contribution: Rs 10,000
Investment amount: Rs 18,00,000
Interest earned at 7.1%: Rs 13,55,679
Final corpus: Rs 31,55,679
Investors should note that the PPF scheme has a maturity period of 15 years, but it can be extended in blocks of 5 years each. The investors can opt for the extension with or without contributions. Extending the PPF investments will also attract tax benefits, both on the new investments and the maturity value.
It's important to note that the PPF investment is a government-backed scheme aimed at long-term wealth accumulation. If you are looking forward to building a retirement corpus or a long-term investment horizon, this could be a suitable option. The PPF scheme is often preferred by the risk-averse investors, who look for secure returns compared to market-linked savings instruments.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
