A public provident fund (PPF) is a system for building a body for post-retirement by investing a sum of money over a long period of time. According to the rules, an investor can open this PPF account at any bank or nearby post office by making a deposit €100. It is necessary to deposit at least €500 in the account every year.
A PPF account falls under the exempt-exempt-exempt category, which allows taxpayers to claim Section 80C income tax benefits on the annual deposit of €1.5 lakhs. According to the norms, there is a 15-year lock-up period during which a depositor can invest €1.5 lakh in a single deposit or in a maximum of 12 installments.
An interest rate of 7.1 percent is payable quarterly on a PPF account. If someone invests money in a disciplined manner every year, they can end up saving €1 crore at the time of maturity.
Although the PPF account has a 15-year term, one can renew the account indefinitely in blocks of five years, Jitendra Solanki, a SEBI-registered tax and investment professional, told sister site Hindustan Times live mint. This means that an investor can continue the PPF option without withdrawing the funds. When renewing the PPF account for the next five years, the depositor also has the option to choose renewal with or without investment.
However, some experts suggest choosing the extension with investment option for the PPF account. According to Kartik Jhaveri, director (assets) at Transcend Consultants, choosing to renew with investment helps earn interest on both the PPF maturity amount and the new investment.
If an employed person opens a PPF account at the age of 30 and rolls over the investment three times (15 years) after the mandatory 15-year vesting period, he/she would have invested for a total period of 30 years. Let’s say the amount invested per year is €1.5 lakh in a PPF account. After 30 years, the due amount will be at the end €1.54 crore on condition that the interest rate stays at 7.10 percent per annum.
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