If you are looking for an investment with tax exemption and great returns, then investing in a Public Provident Fund (PPF) can be a very good option. This is a government scheme that promotes long-term investment. Investment in PPF comes under the EEE category. In this scheme, you get the full benefit of income tax exemption.
There is no tax to be paid on the amount received on maturity. And if you follow the 15 + 5 + 5 rule of PPF, then you will earn ₹ 60,000 interest every month from PPF. Also, there will always be a fund of ₹ 1 crore in your account. So, if you also want to save and invest smartly, then PPF can prove to be a powerful tool for you.
This is the secret formula to become a millionaire
Although the maturity of the Public Provident Fund is 15 years, this scheme provides the facility of extension. After the maturity of the PPF account, you can extend it for 5 years at a time and then for another 5 years! By doing this, you can make the most of this account. This rule helps you to take advantage of compounding over a long period and build a big fund.
What to do after maturity
How to create a big fund of ₹1 crore after extension
After the PPF scheme matures, if you extend it twice for 5 years each, you can create a fund of ₹1 crore through it. For this, you have to deposit ₹1.50 lakh in a financial year.
If we assume an annual interest rate of 7.1%, then the total deposit amount in 15 years will be ₹22,50,000. After adding interest, a fund of ₹40,68,209 will be ready after 15 years.
If you extend this account twice, i.e., for 5+5 years, then the total is 10 years! If you add it to 15 years, it becomes 25 years. In such a situation, your total deposit amount in 25 years will be ₹37,50,000. After adding interest, it becomes ₹1.02 crore. This is the power of long-term investment and compounding.
How to earn ₹60,000 every month
After creating a fund of ₹1 crore in 25 years, this rule will also allow you to earn every month. If the scheme is extended for 5 years without investing anything, you will get an annual interest of 7.1 percent on the closing balance. This will be ₹7,31,300 in a year. If it is divided into 12 months, it will be about ₹60,000 per month! During this time, you can withdraw any percentage of the total amount once every year. There will be no tax on this income. This can become a great source of regular income after retirement.
The government is giving tremendous interest and security to PPF
The government guarantees you security in the PPF account. Currently, 7.1% annual interest is being given on the PPF account. This means that by investing in it, you can save a lot of your tax on the one hand, and on the other hand, you can also get returns. The government directly regulates it. The interest on it is decided by the government itself every 3 months. Therefore, it is completely safe from market risk. It is a haven for your hard-earned money.
Start with ₹500 and get big benefits
In the PPF account, you get the facility to invest in installments! The minimum investment amount has been kept at ₹500. A maximum of ₹1.5 lakh can be invested in a year. If you are short of money, you can deposit money in a maximum of 12 installments in a financial year. This facility makes PPF accessible even for small investors.
You will get a loan if needed
In times of emergency, you can also take a loan against the PPF account. There is a rule for this. You are eligible to take a loan from one year after the end of the financial year in which the PPF account is opened till the end of the fifth financial year. A maximum loan of 25% can be taken on PPF deposits. The interest rate on this is only 1% higher than the interest rate on the PPF account. This facility can help you financially in times of need.