Public Provident Fund: You can add Rs 11 lakh to PPF with just Rs. 2500 in 5 years
Public Provident Fund (PPF) is one of the few investment options that has stood the test of time over several decades. The sovereign guarantee that it enjoys on both the principal invested and interest earned is the clincher while the interest income also remains tax free. On top of it, there is income tax benefit under section 80C on the amount invested in PPF. Therefore, PPF enjoys E-E-E- status as it comes with tax exemption at investment stage, growth remains tax exempt and even maturity remains tax-free. One other important feature of PPF remains largely ignored – Compounding of interest that happens annually in PPF. PPF being a long term scheme of 15 years, the impact of compounding is the best in PPF.
The minimum and maximum annual investment in PPF is Rs 500 and Rs 1.5 lakh and PPF contributions need to be made each year for 15 years to keep the PPF account active. By investing a minimum of Rs 500 during one financial year, one can keep the PPF account active. The interest is on the outstanding balance in the PPF account. Let us see the effect of compounding, if contribution in the last 5 years of PPF is kept only at Rs 500.