For those without the security of a government pension, the later years of life may seem to be shrouded in ambiguity. In such instances, a Public Provident Fund (PPF) account becomes relevant. It is essentially a government savings scheme that develops into a retirement corpus with time. You may even use this corpus to finance a child’s higher education. However, to effectively reap the benefits of such an account, you must familiarise yourself with a public provident fund calculator, among several other aspects.
What is a PPF Account?
A Public Provident Fund account is a long-term savings plan introduced by the Government of India. It is made especially for salaried professionals who wish to build long-term savings. These accounts have the added benefit of interest earnings coupled with attractive tax benefits.
The Government of India regularly declares the rate of interest for PPF accounts (usually every quarter). Moreover, both the principal investment and the interest earned are non-taxable according to Section 80C of the Income Tax Act of India.
To begin your retirement fund using a public provident fund account, you need to understand some of the key features of this type of account.
Key Features of a PPF Account
While these accounts offer several benefits, to avail yourself of them, you need to understand their five key features.
- If you open a public provident fund account, you will be required to deposit a minimum of ₹500 every year. This is the minimum deposit for a PPF account.
- However, the maximum you can deposit into these accounts is ₹1.5 lakh every year. If you wish to deposit more than this per annum, then you can opt for a recurring deposit with your bank.
- Withdrawal from these accounts is restricted for a minimum of 15 years. This ensures that your money remains locked in, allowing you to reap its benefits after retirement. Moreover, you can extend this lock-in period by 5-year blocks after the initial 15-year period.
- The money you deposit each year into your PPF account also accrues interest. This interest is compounded annually. This means that, at the end of 15 years, you would have accumulated a significant lump sum amount.
- You can open a public provident fund account either at a bank or a post office. To learn about the specific policies of the bank or post office you have chosen, it is advisable to contact them directly.
How to Open a PPF Account
Opening a public provident fund account is easy. You can complete the process online, visit your bank branch, or visit the nearest post office. You will need to submit an ID proof, address proof, and a passport-size photo. Some banks also offer online services that allow you to monitor and manage your account digitally.
Why Use a Public Provident Fund Calculator?
It is a free online tool that helps you estimate how much your savings will grow over time. You simply need to enter the amount you plan to deposit each year, and it will display your total investment, interest earned, and maturity amount.
Using a public provident fund calculator before starting your investments helps you plan better and set realistic financial goals.
Benefits of a PPF Account
● Safe Investment
Since the government backs the scheme, it is considered one of the safest savings options.
● Tax-Free Returns
You don’t pay any tax on the interest or the final amount received at maturity.
● Compound Interest
Interest earned is compounded every year, helping your money grow faster.
● Loan and Withdrawal Options
You can take a loan from your account between the 3rd and 6th year or make partial withdrawals from the 7th year onward.
How to Maximise Your Returns
To maximise the benefits of your PPF account, aim to deposit your money by the 5th of every month. This is because the interest is calculated on the lowest balance between the 5th and the end of each month. Also, invest the full amount (up to ₹1.5 lakh) as early in the financial year as possible. This helps you earn interest for the entire year.
Using a public provident fund calculator can help you decide how much to invest monthly or yearly to reach your long-term goals.
Key Takeaway
A PPF account is a reliable and easy way to save for the future. With steady contributions, tax benefits, and compounded returns, it helps build a strong financial cushion. By planning wisely and using a public provident fund calculator, you can ensure your savings work for you in the most effective way possible. If long-term financial stability is your goal, a Public Provident Fund (PPF) account is a worthwhile consideration.