Are you tired of poor equity market performance over the past few years? Has your equity portfolio remained static for much longer? Don’t worry, you can still look for other investment options that can help you navigate not only the current equity market volatility but also to generate healthy returns for years to come.
The Public Provident Fund (PPF) can be an alternative to equity markets, especially given the recent underperformance of benchmark indices such as the Nifty 50 and the BSE Sensex, which have delivered negative returns over the last year.
PPF is one of India’s reputed and trustworthy long-term investment schemes. Backed by the Government of India, it helps investors secure guaranteed returns. With disciplined investing in the PPF and long-term compounding, investors can aim to build a retirement corpus of more than ₹1 crore and even generate a monthly income of more than ₹50,000- that too from interest earnings alone.
Currently, investors an interest rate of 7.1% per annum. Investors can deposit up to ₹1.5 lakh per financial year, and the account has a 15-year lock-in period. Still, the scheme can be extended further in blocks of five years. Such a feature can help investors build a substantial corpus over time.
Let us see the calculations in detail.
PPF corpus growth calculations
|
Investment Period |
Annual Investment |
Interest Rate |
Estimated Corpus |
|---|---|---|---|
| 15 years | ₹1.5 lakh | 7.1% | ₹40.68 lakh |
| 20 years | ₹1.5 lakh | 7.1% | ₹66.58 lakh |
| 25 years | ₹1.5 lakh | 7.1% | ₹1.03 crore |
If you aspire to build a corpus of over ₹1 crore, you will need to continue ₹1.5 lakh every year for 25 years. The power of patience and compounding plays a major role in accelerating wealth creation in the later years of an investment, as the corpus is also quite large.
How can ₹1 crore corpus generate over ₹50,000 monthly income?
Once you accumulate a corpus of over ₹1 crore, i.e., ₹1.03 crore in the PPF account, you can stop investing and making any further contributions and continue to earn annual interest on the corpus. The complete calculation is shown in the table below.
|
Particulars |
Calculation |
|---|---|
| Total PPF Corpus | ₹1.03 crore |
| PPF Interest Rate | 7.1% annually |
| Annual Interest Earned | ₹1.03 crore × 7.1% = ₹7.32 lakh |
| Monthly Income | ₹7.32 lakh ÷ 12 = ₹60,989 |
Investors can earn more than ₹50,000 on a monthly basis, and this can also rise up to nearly ₹61,000 per month from interest income alone, while keeping the principal amount intact. However, PPF permits withdrawals only once every financial year, so annual interest withdrawals must be planned accordingly.
The calculations above are based on several assumptions, including a constant interest rate throughout the investment period and an annual investment limit.
Before you decide to lock in your funds, discuss your current financial health, your long-term economic objectives and the impact of inflation on such an investment strategy with your financial advisor.
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