How PPF can help you and your spouse to create Rs 1 Crore?

How PPF can help you and your spouse to accumulate Rs 1 CroreHow PPF can help you and your spouse to create Rs 1 Crore?


There are various investment options to make One Crore. However, most of the options carry moderate to high risk. If you are are low risk investor and thinking about accumulating Rs 1 Crore between you and your spouse, Public Provident Fund (PPF) would be the best investment option. While you would get income tax exemption u/s 80C, you can get safe returns, and accumulate 1 Crore with help from your spouse. What is Public Provident Fund (PPF)? What are the features of the Public Provident Fund? How PPF can help you and your spouse to create Rs 1 Crore? What are various scenarios in PPF to earn Rs 1 Crore where you can invest low in initial years and highest amount later when your salary increases year on year?

Also Read: How to become Crorepati by investing Rs 50 per day in mutual funds?

What is Public Provident Fund (PPF)?


Public Provident Fund (PPF) is a long-term investment tool introduced in India in the year 1968 by the Ministry of Finance. Under this, a PPF account is opened at the post-office or any branch of nationalized or authorized private bank for tenure of 15 years.  PPF is one of such investment schemes that give you EEE benefit.

1) The amount invested in this account is eligible for tax-exempt under section 80C (subject to an overall limit of Rs 150,000).

2) The interest received on PPF is 100% tax exempted.

3) The PPF amount received on maturity is totally tax-free.

Features of Public Provident Fund (PPF)


The PPF account comes with the following features:

1) The PPF account acts as an important tax-saving tool for tax payers. The interest earned on PPF account is totally tax-exempted. Also, the amount contributed can be claimed as deduction. 

2) The interest rates are governed by the Central Government and declared quarterly (from the year 2016-17). The interest is credited on the annual basis in the account.

3) The minimum investment with which the account can be opened is Rs. 100.

4) The account is opened for tenure of 15 years.

5) One can deposit any amount in the account ranging from Rs 500 to 150,000 per annum. This amount is subject to revision by government. The amount can be invested either lump sum or in installments (maximum 12).

6) It is mandatory to invest a minimum amount in the account annually to avoid inactivation of account.

7) The complete amount can be withdrawn only at maturity. However, partial premature withdrawals are allowed subject to certain conditions.

8) Only one PPF account can be opened by an individual except for an account opened on behalf of a minor.

9) PPF Interest rate is announced every quarter. Current interest for Oct-18 to Dec-18 is 8% per annum, which is compounded annually.  

How much you can invest every year in PPF?


An individual can invest a maximum of 1.5 lakh per annum. The PPF account can be opened in the name of the spouse also with the same limit (doesn’t matter whether your spouse earns or not). So, a maximum of Rs. 3 lakh per annum can be invested in PPF by you and your spouse. The account can be opened in the name of minor child too but the amount invested in his name is clubbed with amount of his guardian. 

How to extend one block of 5 years in PPF?


After maturity, the subscriber has an option of extending the PPF account in a block of 5 years. The account can be extended for any number of 5-year blocks. After maturity, you have an option of either investing more in that account or not.  The extension has to be given within a year of maturity. To continue the PPF account without fresh deposits, one need not intimate the Account Office as it is deemed as extended. The balance will keep earning interest on applicable interest rates.

If you wish to make further deposits, it is necessary to intimate the Account Office and need to submit Form H without which tax benefits cannot be availed.

How to maximize returns from PPF?


You can even maximize your returns from PPF by following these few simple tips:

1) Invest beginning of the financial year: Deposit the entire amount of say Rs 1.5 Lakhs at the beginning of the year so that you can receive maximum tax-free interest for the year. We all know that one can deposit 1.5 lakh maximum in a year in a PPF account. So, instead of depositing in installments every month or during the end phase of the year, if it is possible for you, invest the entire amount in one shot and that’s too before 5th of April. This will help you to earn maximum interest on your deposits.

2) Deposit before 5th April: Deposit the amount before 5th of April so that you get the interest for the month of April also as well as for the remaining 11 months. If you deposit the amount later than this date in April, the interest for 11 months only will be credited to your account. Please note that interest is calculated on the lowest balance maintained in your account between 5th to 30/31st of the respective month.  

3) Use online transfer for faster deposit: Instead of depositing cash or cheque, one can use direct on-line transfer system to ensure that the amount is invested well in time. 

4) Invest in your own PPF + Spouse PPF: You can get one PPF account opened in your spouse name also. Both husband and wife can deposit 1.5 lakh per annum, which means you have tax-exemption of 3 lakh every year. For 15 years, your total accumulation would be 45 lakh (3 lakh x 15 years). You can get interest in both these PPF accounts for the entire period of 15 years.

How PPF can help you and your spouse to create Rs 1 Crore?


The current rate of interest of PPF is 8% per annum, which is compounded annually. The interest rates are revised quarterly by the Central Government. Keeping in mind the fact that a large number of people invest in PPF, the rates would not be changed drastically. Here are few scenarios where you and your spouse can build Rs 1 Crore.

Scenario-1: Taking an average 8% interest, one has to invest Rs 1.5 Lakh per annum each for you and your spouse totaling to Rs 3 Lakhs per annum for 17 years. You would have invested Rs 51 Lakhs (Rs 3 Lakhs x 17 years) and your investment would have grown to Rs 1.02 Crores.

Scenario-2: Taking an average 7% interest (assuming that interest rates would fall in the future), one has to invest Rs 1.5 Lakh per annum each for you and your spouse totaling to Rs 3 Lakhs per annum for 18 years. You would have invested Rs 54 Lakhs (Rs 3 Lakhs x 18 years) and your investment would have grown to Rs 1.02 Crores.

Scenario-3: Taking an average 6.5% interest (assuming that interest rates would still fall in the future), one has to invest Rs 1.5 Lakh per annum each for you and your spouse totaling to Rs 3 Lakhs per annum for 19 years. You would have invested Rs 57 Lakhs (Rs 3 Lakhs x 19 years) and your investment would have grown to Rs 1.07 Crores.

Scenario-4: Let us look at the scenario where you want to invest the fixed amount. Taking an average 8% interest, you and your spouse can invest Rs 1.1 Lakhs per annum each totaling to Rs 2.2 Lakhs per annum for 20 years. You would have invested Rs 44 Lakhs (Rs 2.2 Lakhs x 20 years) and your investment would have grown to Rs 1 Crores.

Also Read: 32 Tips on How NOT to become Crorepati

Scenario-5: Let us look at the scenario where you want to invest, the lower amount in initial stages and higher amount as you go forward (with an increase in your salaries). Taking an average 8% interest, you and your spouse can invest Rs 75,000 per annum each totaling to Rs 1.5 Lakhs per annum for 20 years with a 5% increase in the amount every year. Means first year you would invest Rs 1.5 Lakhs, 2nd year you would invest 5% extra, i.e. Rs 7,500 totaling to Rs 162,500 etc. You would have invested Rs 47.3 Lakhs for 20 years and your investment would have grown to Rs 1 Crores.

How PPF can help you and your spouse to accumulate Rs 1 Crore-Various Scenarios

Conclusion: PPF is an excellent debt product suitable for those who have a very low inclination towards risk. Its EEE (Exempt-exempt-exempt) feature makes it more attractive for long-term time horizon. The above are some possible scenarios. You can create your own Scenario based on your current savings and the period in which you want to build and create Rs 1 Crore.

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Suresh

How PPF can help you and your spouse to create Rs 1 Crore

17 comments

  • vipin

    Dear Suressh,

    I had a query on p2p lending.I wanted to know whether NRI’s can participate in this.

    Thanks,

    • Hello, Here are some guidelines.
      1) NRI is at liberty to gift money to his relatives in india (blood relatives in India (BRII))
      2) the gift received by relative should be declared by the recipient in his income tax returns
      3) in case BRII is lending money to number of borrowers the BRILL would need a money lender licence
      4) for one or two isolated transactions money lender license is not required in India
      5)on repayment of loan by the borrower with interest the lender is free to gift the money to his relative abroad

  • babloo

    Thank you Sureshji for such a wonderful write up on PPF.

  • sivaraman VK

    Very nice article sir. But as always it will not beat inflation. If we become crorepathi spending that time will be more

    • Hello Sivaraman, Here the objective is how to earn 1 Crore. If the objective is to say to beat inflation returns, even the interest rates are higher compared to inflation. If you think that after inflation the returns are low, then one should take little risk and invest in high returns options like mutual fund schemes.

  • milind

    Sir,
    As per PPF rules, whatever you earn(income) from 1st april will be “eligible” for 80C not lump sum amt you deposit say upto 5th april ( in other words hardly anyone of us earn from 1st april to 5th april rs 1,50 lacs)
    PL correct above information

    • Milind, Your question has three parts 1) Income earned is eligible for 80C exemption. Answer is yes. e.g. if you invest Rs 1 Lakh and earning Rs 8,000 interest, you can claim such amount as exemption u/s 80C. 2) If you have invested Rs 1.5 Lakhs or lesser amount before 5th April, income tax exemption u/s 80C is received. Answer is yes. 3) Whatever you invested from 1st April to 5th April, you would get interest only from 5th April, answer is NO. If you invest before 5th April, you would get for entire April month interest. Yes what happens if we don’t invest on 1st April, but invest by 5th April, you would still get April month interest. There is no difference in interest if you invest on 1st April or 5th April.

  • sekar

    Sir can a Govt servant open PPF account in his spouse name too (in addition to his own PPF account) ánd contribute 1.5 lakhs to each account out of his salary? Please note the spouse is a home maker with no earnings. Kindly clarify

    • Hello Sekhar, If you invest in PPF by opening in your spouse name, the income received in her account would be clubbed with your account and necessary income tax needs to be paid. Since this is PPF account and interest is tax free, it is immaterial whether she is earning the money and depositing or you are helping and saving in her PPF account. The returns are anyways tax free. This applies only for PPF or any other tax free savings account.

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