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Public Provident Fund is another form of government savings scheme which offered by all nationalised banks, the post office, and some private banks such as ICICI, HDFC, and Axis Bank.
The minimum deposit is ₹500 per annum, and the maximum is ₹1.5 lakh per annum. One can easily reach the maximum amount with a monthly investment of ₹10,000.
By investing consistently for 35-40 years in extensions, with the help of compounding, one can easily accumulate a total of ₹5.40 crore in bank savings, completely free from tax liabilities.
As stated earlier, once the initial 15-year lock-in period ends, the PPF can be extended in five-year intervals indefinitely.
During these extension periods, interest will also accrue on the whole savings in the PPF account.
This is indeed good, since it provides people with complete security against the temptation to withdraw prematurely in the long term.
However, the drawback is that in the short term, it is not accessible.
Also, the interest rate is quite stable but could decline at any time due to changes in economic conditions. The current rate stands at 7.1% and is subject to quarterly revision.
The table shows you how a consistent monthly deposit of ₹10,000 in PPF grows at 7.1% interest at different investment tenures. All figures are approximate and based on annual compounding.
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Extending from 15 years to 30 years on the same annual deposit roughly doubles the corpus once more, not just from new deposits but from interest earned on interest already credited.
In the current scenario, where a 25-year-old starts investing ₹10,000 per month in a PPF account, calculations show he will have a decent retirement corpus by age 65.
Interest calculation for PPF investment is made based on the lower balance maintained from the 5th to the end of every month.
When you deposit your money before the 5th of every month, you make sure that your entire monthly investment earns interest for the year.
It may sound very little, but over the period of many years, it adds substantial amounts to your bank balance.
In the earlier income tax structure, you could get deductions for contributions up to ₹1.5 lakh every year under section 80C of the Income Tax Act.
Both interest accrued and maturity value are completely exempted from taxation.
In recent times, the money-making capacity of PPF has been slightly affected by interest rates, which have lagged inflation.
For individuals searching for another way of earning money during their retirement period, it is often suggested by financial experts that PPF be combined with other tools such as ELSS, NPS, and annuities.
Financial planners advise yearly deposits made in April, as it offers both compounding benefits and ease.
On the other hand, monthly investments may suit individuals with fixed salaries who like to spread their expenses.
PPF remains India's most trusted, fully tax-free retirement instrument. ₹10,000 a month, deposited consistently for 40 years, can genuinely build a ₹5.40 crore corpus. The formula is simple: start early, deposit before the 5th, and never withdraw until retirement.
If expenses are 12 lacs, as per his last example, then 5 crores is 41x multiple, which should also suffice for FIRE?
Yes, a ₹5 Crore corpus on ₹12 Lakh annual expenses provides a \(41.67\)x multiple, which is an excellent buffer and will generally suffice for FIRE.
How should I start investing Rs. 10,000 per month at age 40 to save enough for retirement?
If you want to build a sufficient retirement corpus of ₹2.5-3 Crores at age 40, it requires disciplined investing, as you have roughly 20 years until age 60.
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