A good investment gives a satisfactory return when one starts saving early and carries it in a disciplined manner. The Public Provident Fund (PPF) is one such scheme that ensures guaranteed return. National Savings Organization in 1968 was directed at making small savings a profitable investment option. IF the tenure is chosen properly, PPF, in the long term, will yield very good returns.
For example, if one invests Rs 1,000 in the Public Provident Fund each month, it will give them lakhs of rupees in return in the long term. Here is an assumptive calculation on how one can receive over Rs 26 lakh by investing a small amount of Rs 1000 per month in PPF.
For the unversed, Public Provident Fund currently offers an interest rate of 7.1 percent. A minimum of Rs 500 and a maximum of Rs 1.5 lakh per annum can be deposited every year in a PPF account at present. A PPF account matures in 15 years, after which you can either withdraw all your money or extend the PPF account for a block of 5 years each.
Find out how to turn Rs 1000 invested in PPF into Rs 26 lakh.
1. Investment for the first 15 years
If one invests Rs 1,000 every month for 15 years, then they will deposit Rs 1.80 lakh by the end of 15 years. On the said amount, they will get Rs 3.25 lakh. Their interest in this at 7.1 will be Rs 1.45 lakh.
2. Extend PPF for 5 years after maturity
Now if one extends PPF for 5 years, and continues to invest Rs 1000 every month, then after 5 years, the amount of Rs 3.25 lakh will increase to Rs 5.32 lakh.
3. PPF extended second time for 5 years again
After 5 years, if one continues the PPF investment again for 5 years, the money in their PPF account will increase to Rs 8.24 lakh.
4. PPF extended for the third time for 5 years
If one extends this PPF account for the third time, for 5 years, then the total investment period will be 30 years while the amount in PPF account will increase to Rs 12.36 lakh.
5. PPF extended for the fourth time for 5 years
If one extends the PPF account yet another 5 years after 30 years, the account will increase to Rs 18.15 lakh.
6. PPF extended for the fifth time for 5 years
After 35 years, if one extends the PPF account for 5 more years, and keeps investing Rs 1000 a month, the money in their PPF account will increase to Rs 26.32 lakh.
By this, an investment of Rs 1000 that you started at the age of 20 will be Rs 26.32 lakhs till retirement.
(Disclaimer: This is in no manner intended to be of any financial advice. For further question, please check with your portfolio manager)
