The Public Provident Fund (PPF) under the Post Office’s Small Savings Scheme is a highly favored option for investment and savings in the country. Often referred to as a Retirement Savings Scheme, it offers a unique benefit: after the scheme matures, it can also serve as a source of monthly income. There’s a provision that allows for the extension of the PPF even after it matures, enabling withdrawals as well. By utilizing this special provision, you can generate a tax-free income of Rs 24,000 each month. It’s important to be aware of this unique feature.
Extension Option
You can extend your Public Provident Fund account after its initial maturity of 15 years. This extension can be done in increments of 5 years, meaning you can keep extending it for additional 5-year periods.
If you choose to extend your investment after the initial 15 years, you will continue to earn an annual interest rate of 7.1% on the balance. If you opt to extend it while continuing to invest, you will benefit from compounding interest just as you did before maturity.
When you extend the scheme without making further investments, you can withdraw any amount once a year. However, if you extend it while continuing to invest, you can withdraw up to 60% of the total amount once a year.
PPF: Potential Fund at 15-Year Maturity
If you make the maximum deposit allowed each financial year until maturity, which is for 15 years, you could accumulate a total fund of Rs 40,68,209 based on the current interest rate.
Maximum deposit per financial year: Rs 1.50 lakh
Interest rate: 7.1% per annum
Total deposit over 15 years: Rs 22,50,000
Total fund after 15 years: Rs 40,68,209.
How will the monthly income look?
After running the scheme for 15 years, you’ve built a fund of Rs 40,68,209. If you decide to extend it for an additional 5 years without making any further investments, you’ll earn 7.1 percent interest on the final balance. You also have the option to withdraw any amount once a year. For this example, let’s say you choose to withdraw just the interest annually.
With a 7.1 percent annual interest on your closing balance, you’ll receive Rs 2,88,843 each year. This entire interest amount can be withdrawn in one lump sum. If you break it down into monthly payments, that comes to about Rs 24,000 per month, and there will be no tax on this withdrawal.
PPF: If you invest for 20 years
Maximum deposit in a financial year: Rs 1.50 lakh
Interest rate: 7.1 percent per annum
Total deposit in 15 years: Rs 22,50,000
Total deposit in 20 years: Rs 30,00,000
Total fund after 20 years: Rs 66,58,288.
What will the monthly income be after 20 years?
From the calculations above, it’s evident that by extending your PPF account for an additional 5 years, you can accumulate a fund of approximately Rs 66.50 lakh. If you continue for 5 more years without any new investments, you’ll earn 7.1 percent interest on the closing balance. Again, you can withdraw any amount once a year, and for this scenario, let’s assume you withdraw only the interest.
With a 7.1 percent annual interest on your closing balance, you’ll receive Rs 4,72,738 each year. This total can also be withdrawn in one go. When divided into monthly amounts, it results in about Rs 39,395 per month, and there will be no tax on this withdrawal.
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