How to Turn ₹ 1.5 Lakh Annually into ₹ 1 Crore with PPF

The Public Provident Fund (PPF) is a highly regarded investment option in India, known for its tax-saving benefits and long-term financial security. Established in 1968 by the National Savings Institute under the Ministry of Finance, PPF aims to mobilize small savings and provide attractive returns along with substantial tax advantages. By making regular investments, individuals can accumulate a retirement corpus of ₹ 1 crore in 25 years. Here’s how:

Understanding PPF Basics

Investment Range and Maturity:

• The PPF allows investments ranging from ₹ 500 to ₹ 1.5 lakh annually.
• It has a maturity period of 15 years, extendable in blocks of five years, ensuring flexibility for long-term planning.

Interest Rates:

• The government sets and revises the PPF interest rate quarterly. It generally ranges between 7-8% per annum, compounded annually.
• As of now, the interest rate is fixed at 7.1%.

Tax Benefits:

PPF offers the EEE (Exempt-Exempt-Exempt) tax benefit under Section 80C of the Income Tax Act. This means the principal invested, interest earned, and maturity proceeds are all tax-exempt.

Being a government-backed scheme, PPF is a secure investment with no risk of default.

Creating a ₹ 1 Crore Corpus

To accumulate ₹ 1 crore, it’s advisable to invest the maximum amount of ₹ 1.5 lakh annually at the beginning of each financial year (April 1). This strategy ensures maximum interest accrual.

Here’s a step-by-step breakdown:

First Year:

Invest ₹ 1.5 lakh on April 1.

By March 31 of the next year, your account will earn interest of ₹ 10,650, making the total ₹ 1,60,650.

Subsequent Years:

• Continue investing ₹ 1.5 lakh every April 1.
• For the second year, your account will start with ₹ 1,60,650. Adding ₹ 1.5 lakh brings the total to ₹ 3,10,650.
• Interest on ₹ 3,10,650 at the end of the second year will be ₹ 22,056.

15-Year Maturity:

• After 15 years of consistent investing, the total investment will be ₹ 22.5 lakh.
• The return will be ₹ 40.68 lakh, with ₹ 18.18 lakh from interest.

Extending the PPF Account:

• If you extend the account for another five years, the ₹ 30 lakh investment will grow to ₹ 66.58 lakh, with ₹ 36.58 lakh as interest.
• Extending for an additional five years (total 25 years) brings the investment to ₹ 37.5 lakh.
• Interest earned will be ₹ 65.58 lakh, making the total return ₹ 1.03 crore.

No Tax on Maturity

One of the most significant advantages of the PPF is that the maturity amount is entirely tax-free. Over 25 years, investing ₹ 1.5 lakh annually can save about ₹ 11.7 lakh in taxes under Section 80C, assuming a yearly saving of ₹ 46,800.

Plan Early for a Comfortable Retirement

Starting your investment journey at the age of 30 can help you build a ₹ 1 crore corpus by the time you reach retirement age. However, remember that the PPF interest rate is subject to quarterly revisions by the government, which can affect the total returns.

Verdict

The PPF is an excellent tool for anyone looking to save on taxes while securing their financial future. By committing to regular investments and taking advantage of compound interest, you can achieve significant financial milestones, including a retirement corpus of ₹ 1 crore. Start early, stay consistent, and watch your savings grow securely and tax-free.