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If you want to create a secure fund for long term by saving a small amount every month without any stock market risk, then Post Office Public Provident Fund i.e. PPF account is the most popular and trusted option. There is no risk of losing even a single rupee in this account secured by the sovereign guarantee of the Central Government. Starting with a minimum amount of just ₹500, this scheme proves to be a boon for those who are students, come from low income group or want to start disciplined savings for their children’s future. Currently the government is on this scheme 7.1% per annum Is giving compound interest (Annual Compounding). This account comes with a mandatory maturity period of 15 years, allowing the real magic of compounding to be seen in it.
If you regularly save ₹500 every month, your total investment in a financial year is ₹6,000. The financial details for a tenure of 15 years assuming an annual compound rate of 7.1% are as follows:
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Monthly Deposit Amount: ₹500 per month
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Annual Investment: ₹6,000 per year
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Your total savings in 15 years: ₹90,000 (i.e. ₹500 $\times$ 180 months)
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Total interest earned in 15 years: About ₹72,728
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Total maturity amount after 15 years: About ₹1,62,728
That means, on a total investment of only ₹ 90,000, you get a net interest of ₹ 72,728. This means that your deposit grows by almost 80% and on maturity you get a guaranteed fund of more than ₹1.62 lakh.
To understand the power of compounding, it is important to see how fast the interest increases in the last 5 years compared to the first 5 years:
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On completion of 5 years: Your total investment will be ₹30,000, on which interest of around ₹6,288 will be added and the fund will be worth approximately ₹36,288 It becomes.
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On completion of 10 years: Your total investment will be ₹60,000, on which the interest earned adds up to approximately ₹28,930 and the total balance will be around ₹88,930 Reaches.
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On completion of 15 years: Your investment will be ₹90,000 and the total interest will increase to ₹72,728, making the final corpus ₹1,62,728 Takes the form of.
Interest calculation in PPF account every month Minimum balance between 5th and last day of the month It is done on. So if you deposit an installment of ₹500 every month, always keep in mind that your installment should be credited to the account on or before the 5th of every month. If you deposit money after the 5th (like on the 6th or 10th), there will be no interest on that ₹500 for the entire month and the interest calculation will start from the next month. So making timely deposits can increase your total returns by several thousand rupees.
After completion of 15 years, if you do not have immediate need of money, you can extend your PPF account in a block of 5 years. There are two options available:
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Extensions with Contribution: If you continue the monthly investment of ₹500 and extend the account for 5 more years (total 20 years), after 20 years your total fund will grow to approximately ₹2,66,332 Will be done.
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Without any new contribution: Even if you do not deposit a single new rupee after 15 years, interest at the rate of 7.1% per annum will continue to accrue on your corpus of ₹1.62 lakh and at the end of 20 years the fund will automatically grow to around Rs. ₹2.30 lakh Will become.
The biggest feature of Public Provident Fund is its ‘EEE’ (Exempt-Exempt-Exempt) tax status:
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First E (Exemption on Investment): The amount deposited in the account gets tax exemption under Section 80C of Income Tax (in the old tax system).
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Second E (Exemption on Interest): The interest of 7.1% received every year is completely tax-free, that is, no TDS or tax is levied on it.
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Third E (Exemption on Maturity): After 15 years, when you withdraw the entire maturity amount of more than ₹ 1.62 lakh in your bank account, then the government does not have to pay even ₹ 1 tax on it.
It is very easy to open a PPF account in the post office. For this, you can go to any nearest post office and fill the account opening form. Along with this, Aadhaar card, PAN card, passport size photograph and first cash or check deposit of ₹500 is required. If you already have a savings account in the post office and have activated internet banking, you can set up auto-debit by directly opening a PPF account online while sitting at home.