It’s sweet 16 for my PPF account

I get an SMS alert. It tells me that a nicely fat number has dropped into my account this morning. This is the cheque I put in three days back. The cheque was given by the bank through which I had opened my public provident fund (PPF) account 16 years ago. (PPF is a 15-year account, but money comes back in the 16th year). I need the money to prepay a toxic home loan product that I find myself locked into (yes, the banks can cheat even the financially literate), or else I would have rolled over the money for another five years. But the process of liquidating a 15-year-old account in a product that has been my all-time favourite triggers a trip down the memory lane and why I opened the account.

The year was 1997 and I was going to join a yet-to-be-launched magazine called Intelligent Investor that was going to be India’s first personal finance magazine. I joined up and then tried to figure out what ‘personal finance’ meant in journalism. There was business journalism and there were stock market tip sheets, but what the fish was personal finance?

Sitting in the basement office of Outlook Delhi as a mid-level journo, I tried to figure it out. There was plenty of time because the crack edit team was very busy setting up the hi-tech HQ in Mumbai with swipe cards and all, and as a small bureau there was not much to do. This was 1997. The Internet was not yet on every computer. But I found myself in the basement office with my first work place online PC—so what if it took five minutes for every site to load. All searches —nope, Google was just about born and not there yet; I must have used Alta Vista (if you don’t know what that is you’re obviously under 25 or over 75!) —on ‘personal finance’ led to US-based sites around the theme.

The first learning from such money-related websites was that there was something to be said about a product that allows long-term compounding with regular contributions to take account of the way an average salary-earner generates surpluses, rather than a punter’s all-or-nothing approach and timing markets. As I looked around for an Indian product that would allow such compounding, I remembered something called the Public Provident Fund. I’d heard about the product from my father but had no motivation to open an account. Old people did PPF and stuff, not us! But then I discovered the Excel sheet and began doing some calculations and realised the power of the PPF account—70,000 invested each year at 12% return would make you a crorepati in 25 years (that was the PPF limit and return in 1997).

The PPF compounding story became the first story that the magazine launched with and became the trigger for opening my own PPF account in 1998.

Initially the contributions were thin and there were years in which I almost missed making the annual pay-in. Earlier because there was very little spare money and later because contributions still needed a trip to a small bank branch in one of the State Bank affiliates. Of ducking under the metal chain with a lock that aims to bump your head as you slide under it, and getting in a line in a grimy dark space with lackadaisical staff. But then three years back I found that the PPF account number was like a bank account number and one could make online transactions into the account. The ease of contributions shows up in the amounts that are moved to the account clearly – the easier the on-boarding, the higher the contributions. One still had to get the pass book updated, but that was done more as a way to convince the rest of the sceptical tech-challenged family that the money getting transferred online was not vapourising.

The exit from the account was smooth. One form to sign and a half-hour wait for the cheque to arrive. The quality of staff has had a makeover and so have the systems. The chain and lock is still there—but now it looks more quaint than irritating. And so ends the first PPF account. Tax-free money compounded over 15-16 years is sweet. Any regrets? Two. One, I should have put more. I should have found the money in my hard-up early career years to somehow make it to the 70,000 limit that PPF allowed. Two, I wish I did not have to close the account. I’ll open another one this year, but the joy of a product that would have compounded for 25 years would have been something else. Oh well. Banks.

Monika Halan works in the area of financial literacy and financial intermediation policy and is a certified financial planner. She is editor, Mint Money, Yale World Fellow 2011 and on the board of FPSB India. She can be reached at expenseaccount@livemint.com