How PPF can help you and your spouse to create ₹ 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 ₹ 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 ₹ 1 Crore? What are various scenarios in PPF to earn ₹ 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 ₹ 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 ₹ 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 ₹. 100.
4) The account is opened for tenure of 15 years.
5) One can deposit any amount in the account ranging from ₹ 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7) The complete amount can be withdrawn only at maturity.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 ₹. 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 ₹ 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 ₹ 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 ₹ 1 Crore.
Scenario-1: Taking an average 8% interest, one has to invest ₹ 1.5 Lakh per annum each for you and your spouse totaling to ₹ 3 Lakhs per annum for 17 years. You would have invested ₹ 51 Lakhs (₹ 3 Lakhs x 17 years) and your investment would have grown to ₹ 1.02 Crores.
Scenario-2: Taking an average 7% interest (assuming that interest rates would fall in the future), one has to invest ₹ 1.5 Lakh per annum each for you and your spouse totaling to ₹ 3 Lakhs per annum for 18 years. You would have invested ₹ 54 Lakhs (₹ 3 Lakhs x 18 years) and your investment would have grown to ₹ 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 ₹ 1.5 Lakh per annum each for you and your spouse totaling to ₹ 3 Lakhs per annum for 19 years. You would have invested ₹ 57 Lakhs (₹ 3 Lakhs x 19 years) and your investment would have grown to ₹ 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 ₹ 1.1 Lakhs per annum each totaling to ₹ 2.2 Lakhs per annum for 20 years. You would have invested ₹ 44 Lakhs (₹ 2.2 Lakhs x 20 years) and your investment would have grown to ₹ 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 ₹ 75,000 per annum each totaling to ₹ 1.5 Lakhs per annum for 20 years with a 5% increase in the amount every year. Means first year you would invest ₹ 1.5 Lakhs, 2nd year you would invest 5% extra, i.e. ₹ 7,500 totaling to ₹ 162,500 etc. You would have invested ₹ 47.3 Lakhs for 20 years and your investment would have grown to ₹ 1 Crores.
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 ₹ 1 Crore.
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Suresh
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Hi Suresh:
1) I am 60 years old and can i open a PPF account now in PO.
2) My wife is 56 years old and wants to invest 1 lakh every year for 5 years, which is the best option in the market.
Hello Laxminarayana
There is no age limit to open PPF account. You can open any time. PPF is sovereign guarantee i.e guaranteed by Govt of India, hence it is immaterial where you open. You can check SBI or HDFC bank where it is very easy to transfer your money every time when you want to invest. If you already have accounts in any large bank, you can open PPF there-itself. In Post office too you can open, but first you need to transfer funds from your bank account to Post office SB and then move to PO PP.
Regd your spouse investment, this would depend on your risk appetite and there are plenty of options. a) If you want to take some risk, investing in balanced mutual funds could be better. b) If you cannot take risk, investing in simple bank FD or post office FD could be better. 3) You can also explore RBI Floating rate bonds which offers 7.15% returns, however interest rate might change every year.
Hi Suresh,
I opened a PPF account and started my investing.
Can I open another PPF account for my Spouse also,she has a PAN card .
If i invested 3lakh per year then later i will get tax benefit for 3lakh per year or 1.5 lakh per year????
Need your advice .
Hello Murugan, As indicated over mail to you, you can open another PPF account in your name for tax savings. You and your spouse can invest and get Rs 1.5 Lakhs per annum, individually as tax exemption u/s 80c for the year you are investing. If you need this every year, you need to make fresh investments every year.
My family has 3 PPF account:
1. Mine
2. Wife
3. Minor Kid (I am the guardian)
Can we as a family deposit 1.5lacs each in all the 3 ppf accounts. We would be following the below method:
I deposit 1.5lac each in my minor child and my wife account. My wife deposits 1.5lac in my ppf account.
Is the above method of deposit of total 4.5lacs (1.5lacs each) legal?
Hello Namit, Since you are guardian for the PPF account of minor, income tax eligibility would not be seperate. You can avail maximum of
Rs 1.5 Lakhs income tax eligibility for you and your minor kid.
Earlier i used to invest in PPF a small amount of Rs.1000/- pm. and it accumulated to 20000 and then i stopped and not invested due to my financial crisis. Now after 3 years i got a job in dubai and i can invest now in PPF. But problem is I am an NRI now.
But my wife and childrens are living in INDIA. How can i be NRI? Please let me now and give some ideas to continue the PPF. Even the bank account which is saved my PPF money is not in active.
Hello Abdul, NRIs can continue their PPF account. you can read latest news here. https://economictimes.indiatimes.com/wealth/invest/nris-can-continue-their-ppf-account-now-earlier-it-was-to-close-on-losing-resident-status/articleshow/63079381.cms?from=mdr
Which is better PPF vs lic Jeevan Labh . I am 35 got labh plan like invest 2L annually for 15y and get 1.13 Cr at 25th year. Death and maturity available.
Thanks Suresh, Such a valuable information on PPF. you can write a article like 2PPF accounts +1or 2 SSY accounts (depends upon Girl childs they have).
Thank you Kiran. Can you pls provide more info on what you are looking for. 2 PPF + 1/2 SSA, but what you want to achieve?
Thanks for your reply. I am having 2PPF (myself and my wife) and 1Sukanka Samriddhi Yojana (for my girl child). in that case we can save 1.5L+1.5L+1.5L =4.5Lper year.
This is one case, it may match some body……
Hello Kiran, In PPF there is no concept of investing for certain period. You should invest every year (minimum amount) and if you invest maximum amount, you can become crorepati in 15-20 years depending on rate of interest + tenure. However if you add SSA, however there is no definite period of investment. e.g. girl child is 1 year, the investment could be 12 years. If girl child is 5 years, investment period is 7 years. Means there is no definite amount I can achieve when girl child turns 18 years or 21 years (based on T&C). Hence accumulate a fixed amount is possible in PPF, however not possible in SSA. Do you agree or have any other creative thoughts?
Yes Suresh, I agree with you. It might be a case. But it is having lot of parameters, mentioned by you. Really I have impressed about your knowledge and where analysis is required and where not….
thank you suresh.
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
Thank you Sureshji for such a wonderful write up on PPF.
Thank you Babloo. Are you implementing this strategy?
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.
Sure. Agreed.
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.
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.