Public Provident Fund (PPF) is a government-backed savings and investment program designed to help individuals secure their financial future through long-term investment. The standard maturity period for a PPF account is 15 years, with the option to extend it in increments of 5 years. This feature of extending the account adds significant value, allowing investors to build a substantial corpus while also enjoying tax-free income.
The interest rates for the Public Provident Fund have remained consistent over time, making it a reliable investment choice. A long-term commitment to this scheme can potentially lead to significant wealth accumulation. PPF offers a guaranteed annual return of 7.1 percent over its 15-year maturity period, with a maximum deposit limit of Rs 1.5 lakh per financial year. It is essential to contribute a minimum of Rs 500 annually to maintain the account.
15+5+5 formula
To maximize your investment, you must commit to the initial 15-year term, followed by two extensions of 5 years each. It is important to note that the maximum corpus can only be achieved by adhering to the deposit limit.
Maximum annual investment: Rs 1,50,000
Interest Rate: 7.1% compounded annually
Total investment over 15 years: Rs 22,50,000
Corpus at maturity after 15 years: Rs 40,68,209
Interest earned: Rs 18,18,209
Based on these figures, if the interest rate remains at 7.1% per annum, it is possible to accumulate a fund of Rs 1 crore over 25 years by following the 15 + 5 + 5 investment strategy. This would require a total investment of Rs 37,50,000 over 25 years, resulting in an interest accumulation of Rs 65,58,015.
A concern for investors in the PPF
Currently, one concern for investors in the Public Provident Fund is the stagnation of interest rates. The last adjustment occurred on October 1, 2018, when the government raised the rate from 7.60 percent to 8 percent. Since then, the rates have seen a decline rather than an increase.