Public Provident Fund (PPF): Public Provident Fund (PPF) is a government savings scheme. Currently, the government is offering 7.1 percent interest rate to investors in PPF. In this scheme, compounding interest is calculated on an annual basis.
This scheme has a lock-in period of 15 years. However, if needed, investors can extend this period for another 5 years. Today we will tell you about this government savings scheme…
The most important thing about PPF is that it is a tax-saving scheme. The amount deposited in PPF is exempted under Section 80C of the Income Tax Act. A maximum of Rs 1.5 lakh can be deposited in PPF annually. Apart from this, the interest received on the money and the amount received on maturity are not taxed, that is, PPF is a completely tax-free investment option.
How is interest calculated in PPF?
Interest on your PPF account is compounded annually and is credited at the end of the financial year. This calculation is based on the lowest balance available between the 5th and the last day of the month. Therefore, it is important that the PPF amount is credited to your PPF account before the fifth of every month to get maximum interest.
How will the investment double?
Let us explain to you with an example how investment in PPF can be doubled. Suppose that every month Rs 10,000 is deposited in your PPF account, that is, Rs 1.2 lakh is deposited in PPF in a year. The current interest rate in PPF is 7.1 percent and you deposit this amount continuously for 15 years. After 15 years, your total investment will be Rs 18 lakh. And at the current rate of 7.1 percent, you will get interest of Rs 13.56 lakh. That is, on maturity you will get more than Rs 31 lakh. This means that your amount will almost double and that too tax free.
Returns will double in PPF
The power of compounding works best when you start early
. The longer the money stays in a PPF account, the higher the interest rate. If possible, start investing in PPF early in your career to get the most benefit of compounding.
Invest more money:
The more money you invest in the long term, the more funds will be collected on maturity.
You can extend the limit after 15 years
After the initial lock-in period of 15 years, you can extend your PPF account in blocks of 5 years. Extending the account not only adds additional money to your deposit, but interest on the existing balance will also continue to accrue.
Deposit money regularly
Make regular deposits in your PPF account and avoid fund withdrawals if possible. Money in PPF doubles with patience. With consistent and long-term investments, you can take full advantage of this tax-free investment option.
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