PPF can help a couple build retirement corpus of Rs 1 crore

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Public Provident Fund (PPF) is one of the safest and secure investment options and a much-preferred avenue among a large number of people in the country. The interest rate on this instrument is 7.1%, which is higher than a number of other popular savings instruments. Though PPF has lost a lot of its earlier sheen due to lowering of interest rates, it can still make a couple a crorepati if they follow a disciplined approach.

If a couple invests regularly, the following scenarios are possible.

Remember, apart from the interest accumulation and compounding, both would get tax benefits under section 80C of the IT Act.

At 7.1%

If this current interest rate exists, it will take just 17 years to make a cumulative corpus of Rs 1 crore between you and your spouse.

Both can invest a maximum of Rs 1.5 lakh each every year. In 17 years you both would invest Rs 51 lakh. With 7.1% interest rate you both will make a corpus of Rs 1 crore.

However, you would need to extend the investment period by one block of five years because the investment tenure is 15 years.

Considering one has a working life of 32 years, it is possible for both of you to make Rs 2 crore each from this instrument alone.

At 6.5%

Considering a dip in interest rates to 6.5%, you both will have to invest Rs 1.5 lakh each per year for 19 years to net Rs 1 crore. In this case, too, you would need to extend the investment by 1 block of five years.

After 19 years you would have put Rs 57 lakh and at 6.5% interest rate, it yields Rs 1.07 crore after this period. If you consider regular investment for 32 years PPF would generate a total of Rs 1.7 crore for each of you.

At 6%

If the interest rate is reduced further to 6% and fi you start contributing to PPF after that then it would take 23 years to reach the target of Rs 1 crore. During this period you both would put Rs 33 lakh each in the PPF account. Considering the interest rate remains at 6%, after this period both you and your spouse would have about Rs 1.12 crore.

You would need to extend the period by two blocks of five years after the expiry of the default 15-year period.

Things to keep in mind

The rate of interest in PPF has kept declining. If a person started investing in 2012, he has seen rates of 8.8%, 8.7%, 8.6%, 8.1%, 8%, 7.8%, 7.9%, 7.6% and 7.1%.

During the 15-year lock in period one can witness a number of different interest rates. So to make the corpus of Rs 1 crore or above it might take a little longer by another 2-3 years more than what we have suggested earlier.