Can you get Rs 24,000 monthly income through PPF contributions? Know calculations
PPF offers 7.1 per cent interest compounded annually. The scheme comes with a 15-year lock-in period, and you need to invest at least some amount for that duration. On completion of five years, you can extend the duration of your investments for further blocks of five years.
Public Provident Fund (PPF) is a popular scheme for retirement planning. The scheme offers 7.1 per cent interest compounded annually. The scheme comes with a 15-year lock-in period, and you need to invest at least some amount for that duration. On completion of five years, you can extend the duration of your investments for further blocks of five years. In your extension period, you may either keep investing or stop it. Since the small savings scheme offers compound interest, staying in the investment for the long-term can help one sizeable corpus at the time of the completion of the scheme. The minimum investment amount in the scheme is Rs 500, and the maximum is Rs 1.50 lakh in a financial year. The PPF is one of the few investment categories that have been kept under the exempt-exempt-exempt (EEE) category. It means deposits up to a maximum of Rs 1.50 lakh in a financial year, the interest earned, and the corpus amount are tax-free. Since it's a non-market-linked product with a fixed interest rate, investments are nearly risk-free. Investments in PPF don't offer a monthly pension, but if you use deposits smartly, you can generate an income of over Rs 24,000 a month easily. And your principal investment will remain as it is. Know how this investment strategy can work.
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Invest Rs 1.50 lakh a year in PPF
The first step is to invest up to the full limit of Rs 1.50 lakh in a PPF account in a financial year. You need to invest it for a full 15 years.
What will happen after 15 years
Calculating at the current rate of 7.10 per cent, your deposits in 15 years will be Rs 22,50,000, the interest earned will be Rs 18,18,209, and the maturity value will be Rs 40,68,209.
What you need to do with your Rs 40.68 lakh PPF corpus
After 15 years of competition, you can either close your EPF account or continue it for another block of five years each. However, you don't need to close your PPF account but need to take another five-year extension. You will have two options then.
First-case PPF scenario
If you stop investing after 15 years, you can withdraw whatever amount of money you want once a year.
Second-case PPF scenario
But if you continue investing, you can withdraw up to 60 per cent of your total corpus.
What you may pick
We assume you won't continue contributing to PPF after 15 years.
What you may do then
At a 7.1 per cent interest rate, your corpus of Rs 40.68 lakh will have a yearly interest of Rs 2,88,842.84 on it. You need to make one withdrawal of this interest in a year.
Rs 24K monthly income through PPF
Though you need to make a one-time withdrawal of Rs 2,88,842.84, if you divide this amount by 12, you will get Rs 24,070.23 in income a month.
(Disclaimer: This calculation is for knowledge purpose only. Don't take it as a recommendation. Do you own due diligence or consult an expert before making an investment.)