Power of Rs 1,50,000 PPF Investment: When we talk about small savings schemes, the first image that strikes our mind is of an investment that can help us achieve our small financial goals with our small periodic or one-time investment. But if one stays consistent with their small savings investments for a long time, not only may they create a sizeable corpus, but they may also create wealth that can provide them an income just from the interest amount for decades.
In this write-up, we discuss how a Rs 1,50,000 yearly Public Provident Fund (PPF) investment may generate a tax-free income of around Rs 92,000/month for many years and a Rs 1.54 crore retirement corpus. Know how it may be possible.
How to start PPF investment
An individual can open a single or a joint PPF account in a post office or a bank with a Rs 500 minimum investment.
They need to invest this much in a financial year to keep their PPF account active, or else it will turn dormant. The maximum PPF investment in a financial year is Rs 1,50,000.
PPF interest rate
The PPF interest rate is 7.1 per cent credited and compounded yearly.
To make the most of this interest, an investor needs to invest from April 1-5 every financial year.
The interest rate remains the same in a bank or a post office.
PPF maturity period
The maturity period is 15 years. On its completion, the account holder can withdraw 100 per cent of their investment amount.
Options after PPF maturity period
After a competition of 15 years, an account holder may take unlimited extensions of 5 years each.
They may contribute or choose not to contribute during their extension period.
In either case, they will keep getting interest on their deposit.
But if the account holder is not contributing, they can’t continue the extended account for more than 5 years.
If they contribute, they can withdraw up to 60 per cent of their corpus once in a financial year.
The maximum withdrawal limit of 60 per cent is of the balance credit at the time of maturity in the block of 5 years.
If they don’t contribute, they can withdraw 100 per cent of their corpus any time during the 5-year extension.
How to generate Rs 92,000/month income from PPF investment
For this, they need to start investing Rs 1.5 lakh a financial year for 15 years and then take extensions of 5 years each and keep contributing the same amount for 15 years more. Let’s see what their corpus will be in 15 and 30 years.
In 15 years, the total investment will be Rs 22,50,000, the estimated interest will be Rs 18,18,209, and the estimated corpus will be Rs 40,68,209.
In 30 years, the total investment will be Rs 45,00,000, the estimated interest will be Rs 1,09,50,911, and the estimated value will be Rs 1,54,50,911.
After 30 years of investment, if they withdraw just the interest from the corpus, it will be Rs 10,97,015 a year. On a monthly basis, it will be equal to Rs 91,418.
Here, it is important to know that PPF is an exempt-exempt-exempt scheme where the taxpayer needs to pay no tax on their PPF corpus. So, all withdrawals will be tax-free.
What will happen if you continue account
After 30 years of investment, they may take another 5-year extension and stop investing Rs 1.50 lakh a financial year.
Rather, they may invest just Rs 500 a financial year to continue their PPF account.
Even if they invest Rs 2,500 in 5 years, they may keep withdrawing Rs 10,97,015 yearly interest from their corpus.
They may continue this practice for many years or decades. When they decide to close their PPF account, they may withdraw the Rs 1.54 crore corpus.
(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)