Get Rs 1.62 lakh by investing Rs 500 only: No tax, no risk, high interest with guaranteed benefits

Are you considering entering the world of investments or seeking a reliable avenue for generating substantial income through interest? Or are you in search of an investment option with minimal risk? If yes, then the Public Provident Fund (PPF) scheme stands out as an excellent choice. It is open to any Indian citizen, and its numerous advantages make it highly favoured.

Financial institutions, including banks and post offices, actively promote the benefits of PPF investments. Noteworthy features include attractive interest rates, tax-free returns, and full ownership of the matured amount. From an investment perspective, the PPF scheme is highly commendable, offering a maturity period of 15 years. Furthermore, it offers the flexibility to extend the investment beyond the initial 15-year term. In the following discussion, we will outline how a modest monthly SIP investment of Rs 500 can become Rs 1,62,728 Lakh, but before delving into that, let's gain a comprehensive understanding of the features, terms, and conditions of the PPF scheme.

Interest Rates and Deposit Limits

Effective October 1, 2023, the PPF account offers an annual interest rate of 7.1 per cent, compounded yearly. Individuals can open an account with a minimum deposit of Rs 500, and the maximum balance allowed in a financial year is capped at Rs 1,50,000. Deposits can be made in lump sum or convenient installments throughout the year.

Who Can Open an Account

The PPF account is open to single adults who are resident Indians and guardians on behalf of minors or persons of unsound mind. Notably, only one account per individual can be opened nationwide, whether in a Post Office or any bank.

Discontinuation and Revival

If the minimum deposit of Rs 500 is not made in any financial year, the PPF account is discontinued. However, depositors have the option to revive a discontinued account before maturity by paying the minimum subscription of Rs 500 plus a default fee of Rs 50 for each defaulted year.

Interest Calculation and Tax Benefits

Interest is calculated quarterly based on rates notified by the Ministry of Finance. It is credited to the account at the end of each financial year and is tax-free under the Income Tax Act. Deposits made in the PPF account also qualify for a deduction under Section 80C of the Income Tax Act.

Loan and Withdrawal Facilities

After the first year, account holders can avail themselves of a loan, and withdrawals are permitted after five years, excluding the year of account opening. The withdrawal amount is limited to 50 per cent of the balance at the end of the 4th preceding year or the preceding year, whichever is lower.

Maturity and Extension Options

The PPF account matures after 15 financial years, excluding the year of account opening. Account holders have several options upon maturity, including closure with the maturity payment, retention without further deposit, or extension for a block of 5 years. Withdrawals are allowed in extended accounts, subject to specific conditions.

Premature Closure and Death of Account Holder

Premature closure is permitted after 5 years under certain conditions, such as life-threatening disease, higher education, or change of resident status to NRI. In the case of the account holder's demise, the account is closed, and the nominee or legal heir(s) cannot continue deposits. PPF interest is paid until the end of the preceding month in which the account is closed.

Understanding these terms and conditions is crucial for individuals considering the PPF account as a long-term investment option. The account not only offers financial security but also serves as a valuable tool for tax planning and wealth accumulation.

How an initial investment of Rs 500 grow to Rs 1.62 lakh?

One can make 12 deposits into a PPF account annually. So, with a current annual interest rate of 7.1 per cent in the Public Provident Fund, interest is compounded annually. Starting with the minimum monthly systematic investment of Rs 500, the annual amount invested comes upto Rs 6000, which will reach Rs 90,000 at the end of 15 years and accrue Rs 72,728 as interest — earning a grand total of Rs 1,62,728 lakh at the end of the 15-year maturity period.