How Much Money Will You Earn After 15 Years with PPF Investments?
The Public Provident Fund (PPF) is a widely popular investment instrument in India due to its tax benefits, long-term compounding benefits, and government-backed security. As of now, the PPF interest rate is approximately 7.1% per annum, which can vary based on government reviews every quarter.
Understanding the PPF Maturity Calculation
PPF maturity amount is calculated using compound interest, which means you earn interest not only on your principal but also on the interest accrued over previous years. Let's break down the calculation using different annual investment amounts to understand the potential returns after 15 years.
Example Calculations for Different Annual Investments
In this section, we will consider three different scenarios based on annual investment amounts:
Scenario 1: Annual Investment of Rs. 50,000
Estimated Maturity Amount: ~Rs. 1,406,700
Total Interest Earned: ~Rs. 656,700
Total Principal Invested: Rs. 750,000
Scenario 2: Annual Investment of Rs. 100,000
Estimated Maturity Amount: ~Rs. 2,813,400
Total Interest Earned: ~Rs. 1,313,400
Total Principal Invested: Rs. 1,500,000
Scenario 3: Annual Investment of Rs. 150,000 (Maximum Allowed)
Estimated Maturity Amount: ~Rs. 4,220,200
Total Interest Earned: ~Rs. 1,970,200
Total Principal Invested: Rs. 2,250,000
Formula for PPF Calculation
The maturity amount is calculated using the compound interest formula for PPF, which is compounded annually:
A P × (1 r n - 1)/r
Where:
A Maturity amount
P Annual investment up to Rs. 150,000
r Interest rate per period currently 7.1 or 0.071
n Number of periods (15 years in this case)
Key Points to Consider
Tax Benefits
Investments in PPF qualify for tax deductions under Section 80C of the Income Tax Act, reducing your taxable income and thus lowering your tax liability.
Lock-in Period
The PPF has a lock-in period of 15 years, but partial withdrawals are allowed after the 7th year. You can also extend the account in 5-year blocks after maturity, providing you with flexibility in managing your financial goals.
Interest Rate Variability
The PPF interest rate is subject to change based on government reviews, so the final returns might vary depending on future rate adjustments.
By contributing regularly, the power of compounding can help you accumulate a substantial tax-free corpus over 15 years.
Investing in PPF can be a wise choice for building a secure financial future. Always consider your financial goals, risk tolerance, and tax implications before making any investment decisions. Consulting with a financial advisor can provide personalized insights and advice tailored to your needs.