Public Provident Fund Calculation for Rs 1 crore: Public Provident Fund (PPF) is considered a good investment option. Not just income tax benefits, the interest earned as well as final maturity amount on PPF deposits are tax free. However, not all investors are aware of how interest is calculated on PPF investment. Over a long period of time, an investor can accumulate Rs 1 crore and even more through PPF. But to accumulate this much amount it is important to know when is the best time to invest, whether lump sum investment or monthly investment is more beneficial, and how the interest will be calculated on your deposits.
Since last year, the government has kept the PPF interest rate unchanged at 7.1%. On March 30, 2020, the government had announced a steep cut in the interest rates on small savings schemes including PPF.
The interest on PPF balance is calculated on a monthly basis. However, it is credited to the account of the subscriber only at the end of the financial year (March 31).
For calculation purpose, the minimum balance in the PPF account between the fifth and the end of each month is considered. This means, if a subscriber invests after the 5th day of a month, then he will get interest on the previous month’s balance. However, if you invest before the 5th day of a month, you will get interest interest on the current month’s balance also, along with the previous month’s balance.
If you want to reach your goal of Rs 1 crore through PPF fast, you should consider depositing money in the account before 5th day of a month.
Now, let us look at how much you need to invest every month to accumulate Rs 1 crore with PPF.
At the current 7.1% interest, your PPF account will have a corpus of around Rs 40 lakh after 15 years if you invest Rs 1.5 lakh per year (or Rs 12,500 per month in PPF account.) This is while assuming that the interest rate remains unchanged for 15 years. It is important to note here that PPF interest rate is revised by the government on a quarterly basis. Hence, the PPF interest rate may go up or down through the investment period.
Note: One can invest a maximum of Rs 1.5 lakh and minimum Rs 500 in PPF account in a year.
According to the Public Provident Fund Scheme 2019 rules, you can extend the PPF account in a block of 5 years. To get Rs 1 crore, you will have to keep extending your account. So, if you extend your account for five years after maturity period of 15 years, your corpus would be around Rs 66 lakh at the end of 20 years (assuming 7.1% interest). If you extend your account for another 5 years, you will get around Rs 1 crore after 25 years.