Retirement, Pension Planning: Public Provident Fund (PPF) is one of the safest ways to save money for retirement. It offers a fairly high interest rate of 8% at present. It is also one of the safest financial tools that may help investors become crorepati in the shortest possible time, thanks to the power of compounding. Normally, people withdraw their PPF deposit after 15 years. However, the PPF account can be extended further in blocks of five years each. You would be surprised to know that by extending the PPF account for just two blocks of five years each, the final amount could be over three times (or 300%) higher than what you may get after 15 years.
Suppose you start investing the maximum amount of Rs 1.5 lakh (Rs 12,500 per month) at the age of 25, then at the current rate of interest of 8%, this amount may grow up to Rs 4398645 in 15 years. However, if you continue the account and remain investing 1.5 lakh per year for another 10 years, then your final amount would be over Rs 1.2 crore! Surprised? Here’s how it works:
If you start the PPF account with an investment of Rs 1.5 lakh, then it earns 8% interest (Rs 12,000) in the first year. In the second year, you will earn an interest of 8% on Rs 150000 + Rs 12000 + Rs 150000. This will be around Rs 24960.
PPF Calculator @8% per annum interest
|Yr||Opening Balance||Amount Deposited||Interest Earned||Closing Balance|
|Total Deposit||2250000||Interest earned||2148645|
Similarly, in the third year you will earn an interest of 8% on 150000 +Rs 12000 + Rs 150000 + Rs 24960 + Rs 150000. This will be Rs 38957. Continuing this way (as shown in the chart above), you will earn a whopping Rs 2148645 interest in 15 years. In another 10 years, the whole amount will become over Rs 1.2 crore. This is almost thrice the amount you could have got in 15 years. This amount will come handy in your days post retirement.
In case, you do not want to invest beyond 15 years, even then you can continue the account for another 10 years. In the period, you will continue to earn the applicable interest rate. In this case also, the money will grow up to over Rs 96 lakh if the interest rate remain unchanged..
Any individual can open the PPF account in their own name as well as on behalf of a minor at banks and also at post office. Opening of PPF accounts in the name of Hindu Undivided Family is not permitted. One can make a minimum deposit of Rs 500.00 and maximum Rs.1,50,000 per annum may in the PPF.