PPF Investment: Public Provident Fund (PPF) can be a tool to get a sizeable retirement corpus and a regular lifelong monthly income. If one invests regularly in PPF, they can generate a retirement corpus to achieve many of their financial goals. Know how one can create an over Rs 1 crore income tax-free retirement corpus and nearly Rs 43,000 tax-free lifelong monthly income from long-term PPF investment.
PPF for Regular Income: Public Provident Fund (PPF) is often used for the diversification of retirement corpus. It’s a non-market-linked, fixed interest rate, small savings scheme that can provide long-term stability to a retirement corpus. Investors can use it in a mix with market-linked investment options to consolidate their retirement portfolio. If used as a long-term investment option, a PPF investment can not only create an income tax-free retirement corpus, but it can also provide an option to generate a tax-free lifelong income. A Rs 1,50,000 annual investment in PPF for a long time can help one create a tax-free retirement corpus of over Rs 1 crore and a lifelong monthly income of nearly Rs 43,000. Know how it may be possible!
PPF investment for retirement corpus planning
PPF offers a 7.1 per cent interest rate compounded yearly. The PPF account can be opened in a post office or a bank. One can deposit a minimum of Rs 500 and a maximum of Rs 1.50 lakh in a financial year in their PPF account.
How to make most of PPF investment
If one deposits in PPF between April 1 and 5, they will get the maximum advantage of a 7.1 per cent interest rate on their PPF investment. The interest is credited on March 31 of every financial year.
Power of compounding in PPF investment
Since it provides compound interest, the investment grows faster with time. Let’s see what corpus it can generate in 15 and 30 years on an yearly investment of Rs 1,50,000.
Power of compounding in PPF investment
In 15 years, investment will be Rs 22,50,000, estimated capital gains will be Rs 18,18,209, and the estimated corpus will be Rs 40,68,209.
In 30 years, investment will be Rs 45,00,000, estimated capital gains will be Rs 1,09,50,911, and the estimated corpus will be Rs 1,54,50,911.
Exempt-exempt-exempt status of PPF
Deposits up to Rs 1.50 lakh in a financial year (for old regime taxpayers), the interest earned, and the retirement corpus are tax-free in PPF.
Loan against PPF
One can avail a maximum loan of up to 25 per cent of the PPF balance. The maximum interest rate on this loan will be 6 per cent per annum.
PPF maturity period
PPF has a maturity period of 15 years. After 15 years, an account holder can either withdraw the amount, or they can extend the account for further blocks of 5 years with or without investment.
PPF withdrawal rule during extension period
During the extension period, a PPF account holder can make 1 withdrawal in each financial year subject to a maximum limit of 60 per cent of the balance credit at the time of maturity in the block of 5 years.
How to get tax-free corpus, lifelong monthly income from PPF
Here, they need to invest Rs 1.50 lakh/year for 31 years. After that period they can withdraw 60 per cent of their corpus and let the remaining amount grow to withdraw Rs 43,000 monthly from the next financial year. Let’s see how this maths will work.
PPF retirement corpus in 31 years
In 31 years, the total investment in 31 years will be Rs 46,50,000, estimated interest will be Rs 1,20,58,575, and the estimated maturity will be Rs 1,67,08,575.
Tax-fee corpus after 60% withdrawal
After 31 years, a 60 per cent withdrawal from a corpus of Rs 1,67,08,575 will be Rs 1,00,25,145. This amount will be tax-free.
After this withdrawal, the remaining amount will be Rs 66,83,430.
Tax-fee corpus after 60% withdrawal
Since we have exhausted our withdrawal limit for the year, we can’t withdraw for one financial year, but we will get a 7.1 per cent on the remaining corpus.
Retirement corpus for lifelong monthly income
The interest earned on a Rs 66,83,430 retirement corpus will be Rs 4,74,523.53. So, the retirement corpus after a year will be Rs 71,57,954. This amount can be used to draw a monthly income.
Interest from Rs 71,57,954 corpus
Now from this stage, we will withdraw just the interest amount from the corpus. At a 7.1 per cent interest rate, it will be Rs 5,11,794. On a monthly basis, it will be Rs 42,649.
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