Investing in a PPF Account Can Make You a Crorepati

It’s tough to become a crorepati without investing in equity. You can get good returns from stocks, staying invested for the long run. The coronavirus pandemic has made stock markets volatile, and you are comfortable with guaranteed returns. Fortunately, you can become a crorepati with regular investments in the PPF. The trick is staying invested for the long term and reap the benefits of compounding return. 

PPF is a safe investment with government backing, offering the highest returns among fixed-income investments. It has a lock-in period of 15 years. You can invest a minimum of Rs 500 and a maximum of Rs 1.5 lakh a year. Make your investments as a lump sum or a maximum of 12 monthly contributions. The interest calculation is on the minimum balance between the fifth and the end of the month. Invest before the fifth of the month, to get maximum interest from the deposits.

The Indian Government reviews the PPF rates each quarter. The current interest rate is 7.1% for the July-September quarter. Investments are tax-deductible for a maximum of Rs 1.5 lakh a year, under Section 80C of the Income Tax Act, 1961. The interest earned and maturity proceeds are tax-exempt, giving the EEE tax status. You get the double gains of good return and tax saving.

The Government cut PPF interest rates from 7.9% to 7.1% on 31 March 2020. You can still become a crorepati with regular investments after the interest rate cut. Stay invested for the long run, and the power of compounding grows the money. It is reinvesting your earnings at the same rate of return, continually increasing the principal amount each year. 

Also Read: Tax Query: Can I claim deduction on PPF or medical insurance payments?

Putting in Rs 1.5 lakh a year for 15 years at 7.1% gives a PPF account balance of about Rs 41 lakh. The account is extended indefinitely in blocks of five years on maturity. You must save Rs 1.5 lakh for 25 years to get a corpus of more than a crore. Extend the account in blocks of five years twice, to become a crorepati. Use a PPF calculator to find the amount to be saved to get a corpus of a crore.

The coronavirus disease has led to job losses and salary cuts. You can take a loan against the PPF balance on a cash crunch. Avail a loan from the third to the end of the sixth financial year of opening the account. You are charged an interest of 1% from the first day of the month you take the loan. The interest payment is till the last day of the month of the final instalment.  However, the PPF account won’t earn interest until you repay the loan. 

PPF offers the highest post-tax return among fixed-income investments. Start investing right from your first salary and maximise contributions to meet financial goals. This investment beats inflation and despite the interest rate cut, makes you a crorepati in the long term. 

For any clarifications/feedback on the topic, please contact the writer at cleyon.dsouza@cleartax.in

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