Investing in a Public Provident Fund (PPF) account is one of the most popular investment options for Indian citizens who want to earn a fixed income. It is a government-backed savings scheme with a lock-in period of 15 years that offers a tax-free return on investment. The PPF account is attractive to investors because it offers a high principal amount and a reasonable rate of interest. This article will discuss how investing in a PPF account can help you earn ₹1 crore over a period of 15 years.
Before we dive in, let’s first talk about what a PPF account is and how it works. The PPF account is a long-term investment option that allows individuals to invest a minimum of ₹500 and a maximum of ₹1.5 lakh per year. The interest rate on a PPF account is regulated by the government and is currently set at 7.1%, compounded annually. The account matures after 15 years, and you can extend it for a period of five years with or without contributions.
To calculate the amount of money you need to invest in a PPF account to earn ₹1 crore in 15 years, let’s use a PPF calculator. A PPF calculator is an online tool that allows you to calculate the maturity amount of your PPF investment based on the amount invested, the interest rate, and the tenure.
Assuming an annual investment of ₹1.5 lakh and a rate of interest of 7.1%, you can earn ₹37,55,469 at the end of the 15-year term. To earn ₹1 crore, you need to continue investing the same amount every year for the next five years. By the end of the 20-year term, the maturity amount of your PPF account will be approximately ₹1.02 crore.
Here’s a summary of the calculation:
Annual investment: ₹1.5 lakh
Rate of interest: 7.1%
Tenure: 20 years
Maturity amount: ₹1.02 crore
It’s important to note that the above calculation is based on current interest rates, which are subject to change over time. Hence, a wise investor should keep tabs on the current interest rates and adjust their investment plans accordingly.
Apart from the fixed interest rate, the PPF account also offers a tax benefit under Section 80C of the Income Tax Act. The amount invested in a PPF account is eligible for a tax deduction of up to ₹1.5 lakh per year. However, the interest earned on the investment is tax-free, making it an attractive investment option for investors who want to save on taxes.
Now, let’s discuss how you can claim your PPF account in case you need to withdraw the money before maturity. Like any long-term investment, unforeseen circumstances may arise, and you may need to withdraw the money from your PPF account earlier than the 15-year tenure. In such cases, you can make a partial withdrawal after the completion of the fifth year. The maximum amount of partial withdrawal is limited to 50% of the balance in the PPF account at the end of the fourth year or the preceding year, whichever is lower.
You can also take a loan against your PPF account after the completion of the third financial year. The loan amount is limited to 25% of the balance in the PPF account at the end of the second year prior to the year in which the loan is being applied for. The interest rate on the loan is currently set at 1% more than the PPF interest rate.
In conclusion, investing in a Public Provident Fund is an excellent way to save and grow your money over the long term. By investing consistently over a period of 15 years, you can earn a substantial return on your investment and accumulate wealth of over ₹1 crore. However, it’s important to note that investing in the Indian financial market involves risks and you should weigh the pros and cons before making any investment decisions. It’s always advisable to consult with a financial advisor before taking any investment action.
Summary:
Investing in a PPF account is a popular investment option for Indian citizens who want to earn a fixed income. The account offers a high principal amount and a reasonable rate of interest, making it an attractive option for investors. With an annual investment of ₹1.5 lakh and a rate of interest of 7.1%, you can earn ₹1.02 crore at the end of the 20-year term. The PPF account also offers a tax benefit under Section 80C of the Income Tax Act. In case of a partial withdrawal, you can withdraw up to 50% of the balance in the account. You can also take a loan against the PPF account after the completion of the third financial year. However, investing in the Indian financial market involves risks, and it’s important to gauge the pros and cons before making any investment decisions. Consult with a financial advisor before taking any investment action.
