Public Provident Fund shortly and famously called as PPF. Generally used as a an tax saving instrument. But Many did not know that this is equalivant to Employees provident fund and debt instrument which is perfect example of compounding. This is an instrument which comes under Exempt- Exempt- Exempt category.
The interest rates varies according the small saving schemes, the interest rates will be announced by the central government after consolation with RBI.
How to Build wealth or Corpus in PPF
First we need to understand that PPF investment interest varies and there cannot be standard out come. If interest rates increases our target maybe reached before our planned period and if interest rates reduced then delay may happen.
But the following calculation made on the assumption of Present rate of Interest 7.1% PA.
A young having joined an organization at the age of 24 years. He started to contributed in PPF the minimum sum of Rs. 500 monthly with 7.1% Pa ( Rs .6000 yearly @7.1%). His retirement say 55 years as the present all the industries have unofficial retirement age is 55 years ( Based on our assumption)
His contribution will be Rs 1,86,000 for 31 years and his interest for that will be Rs .4,82,500 total amount receivable will be Rs.668343.
Simple calculation, but if he increasing it by Rs .1000 every year ie Rs .1000 1 year, Rs. 1500 2nd year like this thing of compounding they will reach 1 crore in 15 years.
Rather than investing the whole amount in FD or RD for that instant Insurance if a person invest Rs. 1,50,000 in PPF every year , his income will be Approximately Rs .2 Crore.
If government employee his retirement is 60 Years then additional 5 years then it will go up Rs.2.27 crore to 2.50 Crore with tax exemption the interest amount earned.
So everything is mindset and our determination and our philosophy which directs us.
Every instruments has its own advantage and disadvantage. Here Lock in period is 15 years.
May ask can we withdraw in between yes for health, emergency, Child marriage etc as few conditions set in. But this is one of the best instrument which many ignore. Hope this is article will be helpful for all.
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