Public provident fund: Deposit of ₹2,000/month in PPF account can earn up to ₹1.08 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.

At a fixed interest rate of 7.1% this quarter, PPF is among the safest investment options for tax planning, building a long-term corpus and retirement in India and an effective wealth builder. Available for tax benefit under the old tax regime, it is EEE advantage — exempt investment, exempt maturity amount, exempt interest earned.

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.

You can open a PPF account at your closest post office or public bank, and some private banks in India, for a minimum deposit of ₹100-500 each month. KYC submission is required along with the application form and a passport size photo.

How much can ₹2,000/month earn for you by retirement?

• Start investment at age 45: ₹2,000 per month deposited for 15 years is investment of ₹3.60 lakh and earns you interest of ₹2.90 lakh, for total maturity payout of ₹6.50 lakh at age 60.
• Start investment at age 40: ₹2,000 per month deposited for 20 years is investment of ₹4.80 lakh and earns you interest of ₹5.85 lakh, for total maturity payout of ₹10.65 lakh at age 60.
• Start investment at age 35: ₹2,000 per month deposited for 25 years is investment of ₹6 lakh and earns you interest of ₹10.45 lakh, for total maturity payout of ₹16.49 lakh at age 60.
• Start investment at age 30: ₹2,000 per month deposited for 30 years is investment of ₹7.20 lakh and earns you interest of ₹17.52 lakh, for total maturity payout of ₹24.72 lakh at age 60.
• Start investment at age 25: ₹2,000 per month deposited for 35 years is investment of ₹8.40 lakh and earns you interest of ₹27.91 lakh, for total maturity payout of ₹36.31 lakh at age 60.
• Start investment at age 20: ₹2,000 per month deposited for 40 years is investment of ₹9.60 lakh and earns you interest of ₹43.05 lakh, for total maturity payout of ₹52.65 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 15: ₹2,000 per month deposited for 45 years is investment of ₹10.80 lakh and earns you interest of ₹64.87 lakh, for total maturity payout of ₹75.67 lakh at age 60.
• Start investment at age 10: ₹2,000 per month deposited for 50 years is investment of ₹12 lakh and earns you interest of ₹96.12 lakh, for total maturity payout of ₹1.08 crore at age 60.

Public Provident Fund: What are the key features?

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).

How many extensions are allowed for PPF account?

Individuals, including minors can open one PPF account each for a fixed period of 15 years. After the term ends, the account can be extended indefinitely, in blocks of five years each, with or without added contributions.

While there is no upper limit on the number of times you can extend the tenure of your PPF account, a Clear Tax report noted that each extension can only be done upon reaching maturity. The extension is not automatic, and you need to submit a request to the bank or post office.

At the end of 15 years term or end of each extended tenure, investors have a choice to withdraw the entire amount and close the account or extend it for another five years.

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.