Public Provident Fund (PPF) is a popular choice that investors can depend on while looking to build a long-term savings corpus, particularly for retirement. The account has a 15-year maturity period, calculated from the end of the financial year in which it was opened. Since the scheme offers government-backed returns, many investors continue their contributions over the years without having to track market movements.
Once the account completes 15 years, the holder can withdraw the entire balance, including the principal and accumulated interest. The maturity proceeds are tax-free, making PPF an attractive option for long-term savings.
However, withdrawing the money is not the only option. Account holders can extend their PPF account in blocks of five years, either without making fresh deposits or by continuing to invest. Under the contribution option, they can deposit between Rs 500 and Rs 1.5 lakh in a financial year.
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But how much difference can it make to keep investing for another five years. Imagine your PPF account matured after you contributed Rs 1.5 lakh for 15 years. You decide to leave that amount untouched for another five years. In the second scenario, you choose to keep investing. Here's how the two scenarios will differ.
PPF Account On Maturity
- Yearly investment: Rs 1.5 lakh
- Time: 15 years
- Returns: 7.10% p.a.
- Invested Amount: Rs 22,50,000
- Interest Earned: Rs 18,18,209
- Maturity Value: Rs 40,68,209
Extending PPF Account With Contribution
- Yearly investment: Rs 1.5 lakh
- Time: 20 years
- Returns: 7.10% p.a.
- Invested Amount: Rs 30,00,000
- Interest Earned: Rs 36,58,288
- Maturity Value : Rs 66,58,288
Extending PPF Account Without Contribution
- Yearly investment: Rs 1.5 lakh
- Time: 20 years
- Returns: 7.10% p.a.
- Invested Amount: Rs 22,50,000
- Maturity Value after 15 years: Rs 40,68,209
- Interest earned over next five years: Rs 16,64,377
- Total value: Rs 57,32,586
It can be seen that with contributing, the PPF maturity corpus grows to Rs 66.58 lakh, while without contribution it grows to Rs 57.32 lakh. This means that essentially by investing another Rs 7.5 lakh, you get an added corpus value of Rs 9.25 lakh.
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Whether this investment is the best use of your money depends on your financial goals and investment horizon. You must also note that current PPF returns have been set at 7.10%, but the government periodically reviews the interest rate, which can influence the final returns.
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