PPF is a small savings scheme. This scheme is government-backed. If you want to invest for the long term without any risk, this scheme is ideal. Besides being safe, it also offers tax-free returns.
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If you work in a private job or run a small business and want to receive a pension sufficient after retirement to avoid having to beg for daily expenses, investing in PPF, or Public Provident Fund, can fulfill this desire.
The tax-free interest and compounding power of PPF make this scheme even more special. Therefore, this scheme is ideal for those looking to build a substantial retirement corpus over the long term without stress. We will explain in detail how much monthly deposit can create a retirement fund of Rs 1 crore. We will also learn how much money you need to invest in a PPF account if you want a monthly pension of Rs 60,000-62,000.
What is PPF?
PPF is a small savings scheme. This scheme is government-backed. If you want to invest for the long term without any risk, this scheme is ideal. Besides being safe, this scheme is also known for its tax-free returns. It is ideal for those who want to build a large corpus over the long term with minimal risk. You can start investing in this scheme by opening an account in any government-owned bank. Accounts can also be opened in select private banks and post offices across the country. Any Indian citizen can open an account.
Furthermore, a guardian can open a PPF account in the name of a minor. However, the guardian will be in charge of the account until the minor turns 18.
What are the benefits of investing in PPF?
The most important feature of this savings scheme is that it offers a fixed return from the government. The government has currently fixed the interest rate on PPF at 7.1% per annum. You can open a PPF account by depositing just Rs 500 per month. However, the maximum investment allowed in a financial year is Rs 1.5 lakh. Its lock-in period is 15 years, and this can be extended in blocks of 5 years after maturity.
Tax expert Vinod Rawal told Lallantop that the special feature of PPF is that the amount deposited in the PPF account can be claimed as a tax deduction under Section 80C. The government provides tax exemption on investments up to Rs 1.5 lakh under Section 80. This scheme has EEE status, which means it is tax-free at all three stages. This means that when you invest in PPF, the amount deposited is tax-deductible under Section 80C of the Income Tax Act. The interest earned under this scheme is completely tax-free. Furthermore, the entire amount received upon maturity after 15 years is tax-free on both the principal and interest.
How to build a corpus of ₹1 crore in PPF?
Financial Express journalist Mithilesh Jha explains, “Let’s assume you deposit ₹1.5 lakh annually into your PF account until the maturity period, i.e., for 15 years. You earn 7.1% interest on it. After 15 years, your retirement fund, including interest, becomes ₹40 lakh 68 thousand. If you continue investing in PF for another 5 years after maturity, the total amount will become ₹66.58 lakh.”
PPF accounts offer the option to extend your investment twice, for 5 years each. Mithilesh further explains, “So, suppose you deposit ₹1.5 lakh annually for another 5 years, the total corpus will become ₹1 crore 4 lakh. Thus, if you want a retirement corpus of ₹1 crore, you will have to patiently invest for 25 years.”
Additionally, if you keep ₹1 crore in your PF account, you’ll earn ₹738,000 in interest each year at an annual interest rate of 7.1%. This means you’ll earn ₹61,533 in interest each month. You can treat this amount as a pension and use it to meet your needs. Best of all, your principal of ₹1 crore will remain safe.
