Public provident fund: Deposit of ₹10,000 per month in PPF account can earn up to ₹5.40 crore at retirement — Here's how

The public provident fund (PPF) is a top choice when it comes to long-term financial planning. Launched by the Centre in 1986, it is a reliable, low-risk government backed savings scheme with consistent and guaranteed returns.

Among the safest investment options for tax planning and an effective wealth builder, you can open a PPF account at a post office or bank by submitting an application form, photo and stated KYC documents.

How much can ₹10,000/month in PPF earn by age 60?

• Start investment at age 20: ₹10,000 per month deposited for 40 years is investment of ₹48 lakh and earns you interest of ₹2.15 crore, for total maturity payout of over ₹2.63 crore at age 60.
• Start investment at age 25: ₹10,000 per month deposited for 35 years is investment of ₹42 lakh and earns you interest of ₹1.39 crore, for total maturity payout of over ₹1.81 crore at age 60.

• Start investment at age 30: ₹10,000 per month deposited for 30 years is investment of ₹36 lakh and earns you interest of ₹87.60 lakh, for total maturity payout of over ₹1.23 crore lakh at age 60.
• Start investment at age 35: ₹10,000 per month deposited for 25 years is investment of ₹30 lakh and earns you interest of ₹52.46 lakh, for total maturity payout of over ₹82.46 lakh at age 60.
• Start investment at age 40: ₹10,000 per month deposited for 20 years is investment of ₹24 lakh and earns you interest of ₹29.26 lakh, for total maturity payout of over ₹53.26 lakh at age 60.
• Start investment at age 45: ₹10,000 per month deposited for 15 years is investment of ₹24 lakh and earns you interest of ₹29.26 lakh, for total maturity payout of over ₹53.26 lakh at age 60.

Public provident fund account for children

For children or minor applicants, a parent or guardian can open a joint PPF account which can be converted once the account holder turns 18 years old.

• Start investment at age 10: ₹10,000 per month deposited for 50 years is investment of ₹60 lakh and earns you interest of ₹4.80 crore, for total maturity payout of over ₹5.40 crore at age 60.
• Start investment at age 15: ₹10,000 per month deposited for 45 years is investment of ₹54 lakh and earns you interest of ₹3.24 crore, for total maturity payout of more than ₹3.78 crore at age 60.

Why you should consider PPF: Key highlights

• Tenure: The account is for 20 years, including a lock-in period of 15 years. It also offers indefinitely renewable extension in five-year blocks each.
• Risk: It is a risk-free investment with guaranteed return as per fixed interest rate of 7.1% this quarter. Notably, this is reviewed each quarter.

• Tax benefit: It is EEE instrument where investment is exempt from taxes, the maturity amount is exempt from taxes, and interest earned is also exempt from income tax at time of payout.
• Tax saving: A total of ₹1.5 lakh annual contribution is exempt under Section 80C of the Income-Tax Act for old tax regime. There is no similar benefit at present under the new tax regime.
• Opening account: This can be opened by individuals and joint holders, including minors, at all public banks and post offices, some private banks with initial deposit of ₹100-500.
• Loan collateral: The corpus is accepted as loan collateral after 1 year (up to 25% of balance).

• Withdrawals: Partial withdrawal is allowed after five years of opening an account only for specified reasons. Full withdrawal is allowed after the 15 years lock-in period ends.

How to maximise returns for your PPF investment?

Under PPF, interest is calculated on a monthly basis on the minimum balance between 5th and the end of the month. And, while interest is calculated on monthly basis, it is transferred to your account annually on 31 March. Thus, if you miss the deposit before 5 April, your money starts earning from the next month (i.e. May) and you miss out on one full month of interest.

Calculated as follows: For ₹1.50 lakh invested during the financial year interest of ₹887.5 per month is earned at the current interest rate of 7.1%. On an annual basis this is ₹10,650. So, investing after April 5 would lead to loss of one ₹887.5 installment from the total, giving you ₹9,762.5 on investment of ₹1.5 lakh, and so forth.

The impact is even bigger when you take into account the power of compounding: At 7.1% p.a. (assuming same rate for 15 years), investing ₹1.5 lakh by 5 April annually, over the full duration earns you an interest of ₹18.18 lakh. Missing the deadline even for one year, reduces your cumulative interest to ₹17.95 lakh (loss of ₹23,188).

Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.