Can I Deposit in PPF for 25 Years if I am 21 Right Now?

The minimum investment period for Public Provident Fund (PPF) is 15 years. After this initial period, you can extend the investment for a further 5 years in blocks. This means that after 15 years, you will need two more extensions to reach a total investment period of 25 years.

PPF vs. ELSS: A Comparative Analysis

For a 25-year investment horizon, you have the option to deposit your amount in the PPF scheme. However, the maximum investment per financial year in PPF cannot exceed Rs. 1,50,000, and 80C component can be availed for tax savings up to Rs. 1,50,000. The remaining amount can be invested in an Equity Linked Savings Scheme (ELSS) fund, which is a high-return mutual fund product suitable for individuals with a higher risk appetite and long-term orientation.

PPF is a low-risk, secured investment with attractive returns, and it offers the benefit of three-exempt regime (EEE) – wherein the interest earned and the principal withdrawn are exempt from income tax. Conversely, ELSS is a high-risk fund that may not yield the expected returns in the short term but can offer significant growth potential over a long period. Given your target of achieving Rs. 1 crore by investing Rs. 12,000 per month for the next 20 years, you may consider dividing your investment into these two schemes.

Understanding the PPF Scheme

The Public Provident Fund (PPF) scheme is a long-term investment plan backed by the Government of India, designed to offer absolute security and attractive returns. Only resident Indians or individuals can open a PPF account, and an individual can hold only one such account. The PPF minimum investment requirement is Rs. 500 per financial year, with a maximum of Rs. 1,50,000. The maturity period of a PPF account is typically 15 years, with interest being calculated on the minimum balance between the 5th and the last day of a month and paid annually.

The current interest rate for PPF is regulated by the Ministry of Finance, Government of India, and stands at 8%. This rate is subject to change annually based on economic conditions. Notably, PPF is considered an EEE (Exempt-Exempt-Exempt) investment, meaning that the investment amount, the interest earned, and the withdrawal of the principal or interest amount is tax-free under the Indian Income Tax Act.

Another benefit is the availability of a loan facility between the 3rd and 6th year of the investment period. After the 7th financial year, you can withdraw a limited amount. Extending the PPF account for another 5 years is possible, provided you apply for the extension within one year of the maturity period. This extension can be beneficial as it allows you to review the prevailing interest rates and make informed decisions.

Conclusion

While the initial 15 years of a PPF account is fixed, extending the investment for 5 years at a time, up to a maximum of 25 years, is permissible. This flexibility can be advantageous if you wish to adjust your financial strategies based on changing market conditions and personal circumstances. By carefully balancing your PPF and ELSS investments, you stand a good chance of achieving your long-term financial goals effectively.