In a recent meeting regarding the interest rates on various savings schemes, the Ministry of Finance announced that the interest rates of Public Provident Fund (PPF) accounts would remain unchanged at 7.1 per cent. Investors had long anticipated a rise in the PPF interest rates considering how this long-term traditional investment option had continued to yield returns at the same rate.
However, this must not stop couples from continuing their PPF investments considering how putting money into this opportunity for 15 long years can help them amass sufficient money for their future needs.
Contributions made to a PPF account are eligible for tax deductions under Section 80C of the Income Tax Act, subject to the overall limit of ₹1.5 lakh. The interest earned and the maturity amount are also tax-free. The following table illustrates how this 15-year investment can help investors earn good returns as a part of their investment plan.
Assuming that both the husband and wife invest in their PPF accounts respectively.
Husband’s PPF account
Yearly investment: ₹1,50,000
Interest rate: 7.1%
Investment tenure: 15 years
translates to
Invested amount: ₹22,50,000
Total interest: ₹18,18,209
Maturity value: ₹40,68,209
Wife’s PPF account
Yearly investment: ₹1,50,000
Interest rate: 7.1%
Investment tenure: 15 years
translates to
Invested amount: ₹22,50,000
Total interest: ₹18,18,209
Maturity value: ₹40,68,209
The total yield from both the PPF accounts amounts to ₹81,36,418
Investment in the PPF account can be extended by five years. Assuming that both the husband and wife decide to continue with their PPF investments for five more years, the maturity value in each PPF account would be ₹66,58,288.
The combined maturity value from both accounts would amount to ₹1,33,16,576.
A simple and innocuous investment opportunity can help amass a good amount exceeding a crore, thus, underlining how the compounding effect is inherent to creating wealth over a prolonged tenure.
The magic of compounding is visible only when investors are willing to have time in their stride. Irregular investments over a short tenure amount to gambling and do not yield the desired results, thus, impeding one’s ability and ambition to create the much-desired wealth.
