Ruchi SrivastavaFor many individuals, the dream of becoming a crorepati (a millionaire in Indian rupees) may seem out of reach, especially when relying on simple investment strategies. Achieving this goal can appear intimidating, but there’s a straightforward and reliable way to make it happen—through the Public Provident Fund (PPF). This government-backed savings scheme offers a secure and disciplined approach to building wealth steadily over time.
In this blog, we will delve into how you can leverage the power of PPF to turn your aspirations of becoming a crorepati into reality.
Understanding Public Provident Fund (PPF)
The Public Provident Fund (PPF)15 is a well-known, long-term investment choice in India, favored for its tax-saving benefits and secure returns. Launched by the National Savings Institute under the Ministry of Finance in 1968, the PPF scheme encourages small savings while offering attractive returns and income tax advantages. By consistently contributing to the PPF scheme, individuals can build a retirement fund of ₹1 crore over 25 years. You can invest anywhere between ₹500 and ₹1.5 lakh annually in PPF. This scheme serves as a valuable investment and tax-saving option for both salaried professionals and other individuals who aim to maximize their returns.
What is compounding in PPF?
In a Public Provident Fund (PPF), compounding works by adding the interest earned to your principal amount. This means that future interest is calculated on the increased total, which includes both your initial deposits and the interest that has already accrued. For example, if you start investing ₹1,50,000 annually at the age of 30, you could accumulate a retirement corpus exceeding ₹1 crore by the time you reach 60. This method of earning interest on both your principal and the accumulated interest leads to rapid growth of your investment over time.
In the Public Provident Fund (PPF), you can invest anywhere from ₹500 to ₹1.50 lakh per year. The scheme matures after 15 years, not including the fiscal year in which the account is opened, and offers an annual interest rate of 7.1%. While the interest rate may vary slightly each year, it provides more security compared to market-linked investments.
The PPF encourages long-term savings through its 15-year maturity period, which can be extended in five-year intervals. This means you will continue investing in the same fund over the next fifteen years, allowing your corpus to grow significantly. This extended investment horizon is especially beneficial for retirement planning, as it helps you gradually accumulate a substantial amount of savings.
Here’s an example that illustrates how your money grows gradually and steadily over time:
- Annual Investment: ₹1,50,000
- Interest Rate: 7.1%
- Investment Duration: 30 years
In this scenario:
- Total Invested Amount: ₹45,00,000
- Total Interest Earned: ₹1,09,50,911
- Maturity Value: ₹1,54,50,911
Thus, after 30 years, you can become Crorepati (having a corpus of over ₹1 crore) solely through your Public Provident Fund (PPF) investments.
How to Calculate the Growth of Your PPF Investment?
Here’s a practical example of how your PPF investment can grow. If you invest INR 1.5 lakh annually in PPF with an interest rate of 7.1%, your investment will progress as follows:
- After 15 years: Your corpus would be around INR 40 lakh.
- After 20 years: Your corpus would increase to approximately INR 66 lakh.
- After 25 years: Your investment would reach about INR 1 crore.
These projections assume a constant interest rate of 7.1%, though rates may fluctuate. Nonetheless, the trend indicates significant growth over the long term.
Tax Benefits under the Public Provident Fund (PPF)
The Public Provident Fund (PPF) provides several tax advantages that are beneficial for those looking to reduce their tax burden while saving for the future. Here’s a brief overview of the main tax benefits:
- Section 80C Tax Deduction: Contributions to the PPF are eligible for tax deductions up to ₹1.5 lakh annually under Section 80C of the Income Tax Act. This helps lower taxable income and reduces overall tax liability.
- Interest-Free from Taxes: The interest earned on PPF deposits is exempt from income tax, making it an efficient savings tool.
- Maturity Proceeds Exempt: The total amount received at maturity, including both the principal and interest, is tax-free, ensuring that you don’t pay tax on the entire maturity sum.
- EEE Status: With its Exempt-Exempt-Exempt (EEE) status, PPF guarantees that contributions, interest, and maturity proceeds are all free from tax, enhancing its appeal as a tax-efficient investment.
Process of becoming Crorepati with PPF?
- Start Early: Begin investing as soon as possible to maximize growth. Early investment allows you to benefit from compounding. For example, if you start putting INR 1.5 lakh into PPF annually at age 25, you can build a substantial corpus by retirement.
- Maximize Your Contributions: To accelerate wealth accumulation, invest the maximum permissible amount each year, which is currently INR 1.5 lakh. This helps you fully leverage the PPF scheme’s benefits.
- Commit for the Long Haul: PPF is designed for long-term investment. The initial lock-in period is 15 years, but you can extend it in 5-year blocks indefinitely. Longer investment periods allow your funds to grow more significantly through compounding.
- Use the Extension Feature: After the first 15 years, you can extend your PPF account in 5-year intervals. Taking advantage of these extensions is key to reaching your financial goals, as additional years enhance the compounding effect.
Conclusion
To achieve the goal of becoming a crorepati with PPF, you need to be patient and consistent. It’s not about making quick profits but about steady, reliable growth over time. By consistently investing the maximum amount and allowing your money to benefit from compounding, you can build substantial wealth. With disciplined investments, a long-term approach, and the power of compounding, reaching this milestone is not just a possibility but a realistic goal. Start early, invest wisely, and let PPF help transform your investment into a crore.
Public Provident Fund: How to become a crorepati through simple investment? (msn.com)
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