Investment Wisdom: Deposit 1.5 Lakh in PPF at 20, Become a Tax-Free Millionaire with 1 Crore After 45 Years

Public Provident Fund (PPF): A Popular Savings Scheme in India

The Public Provident Fund (PPF) is a popular savings scheme in India. Currently, the interest rate on PPF accounts is 7.1% per annum, applicable from April 1, 2023. Individuals can open a PPF account with any bank or nearby post office.

Any person can open a PPF account with a minimum deposit of at least INR 500 per year. At present, individuals can contribute up to INR 1.5 lakh annually to their PPF account.

According to financial expert Jitendra Solanki, PPF is a trustworthy and secure investment option that can help individuals build substantial wealth over time. While it may not make someone a millionaire, PPF is a reliable plan that can materialize dreams and provide a better financial future.

Solanki suggests that if a person starts investing INR 1.5 lakh in PPF at the age of 20, by the time they turn 45, they could potentially become a crorepati (a person with a net worth of at least 10 million). After that, if they wish, they can continue investing in PPF until retirement or engage in other significant financial activities.

You Need to Deposit Regularly for 15 Years

If you consistently deposit this amount of INR 1.5 lakh annually for 15 years, you will earn interest over the period. At the prevailing interest rate of 7.1%, your total maturity amount would be INR 40,68,209. This means that by contributing only 22.50 lakh over 15 years, the interest earned at the rate of 7.1% will be INR 18,18,209.

If you decide to continue this investment for an additional 5 years, you can potentially become a crorepati (a person with a net worth of at least 10 million) in 25 years. Regular and disciplined contributions to your PPF account can lead to significant wealth accumulation, providing financial security and stability over time.

Compounding of Interest through PPF for Becoming a Crorepati

In reality, becoming a crorepati through the Public Provident Fund (PPF) is facilitated by the power of compounding. Compounding interest means that you not only earn interest on your principal amount but also on the accumulated interest. This compounding effect allows your wealth to grow exponentially over time.

If you consistently deposit INR 1.5 lakh annually in your PPF account, the interest earned compounds on the total amount, including the principal and the previously earned interest. This compounding nature of PPF interest makes the process of accumulating wealth and becoming a crorepati relatively straightforward. It emphasizes the importance of a long-term and disciplined approach to investments, ensuring that your money works for you over time and grows substantially.

Opening a PPF Account for Individuals Below 18 Years

Individuals below the age of 18 can indeed open a PPF (Public Provident Fund) account. However, there are certain conditions and considerations:

1. Guardian’s Consent: A minor cannot open a PPF account on their own. It must be opened in the name of a minor by their parent or legal guardian.
2. Guardian’s Name: The PPF account will be opened in the name of the minor, with the guardian’s name mentioned. For example, “Minor’s Name (Guardian’s Name).”
3. Maximum Deposit Limit: The total contribution to the PPF account, whether by the minor or the guardian, cannot exceed the annual limit set by the government, which is INR 1.5 lakh.
4. Operational Aspects: While the guardian manages the account until the minor turns 18, the minor can take control of the account once they reach the age of majority. However, the guardian’s name will still be associated with the account until it is formally updated.
5. Nomination Facility: Just like any other PPF account, a nomination facility is available, allowing the guardian to nominate a person to manage the account on behalf of the minor in case of unfortunate events.

Opening a PPF account for a minor provides a long-term investment avenue and instills the habit of saving from an early age. It’s important to adhere to the rules and regulations set by the financial institution or post office where the account is opened.

Becoming a Crorepati through PPF: A Mathematical Explanation

If an earning individual consistently deposits an amount of INR 1.5 lakh into their PPF account every year for 15 years, they will become a crorepati (someone with a net worth of at least one crore rupees) in the next 25 years.

Here’s the breakdown:

1. Annual Deposit: The individual deposits INR 1.5 lakh every year into their PPF account.
2. Time Period: This process continues for 15 years.
3. Increment Every 5 Years: After the initial 15 years, the individual can increase their deposit amount. Let’s assume they increase it every 5 years.
   • After 20 years: The total deposited amount would be INR 22.50 lakh.
   • After 25 years: The total deposited amount would be INR 37.50 lakh.
4. Interest Calculation: With a PPF account interest rate of 7.1%, the total interest earned on the deposits over 25 years would be substantial.
   • The total interest earned would be approximately INR 65,58,015.
5. Final Amount Calculation: The sum of the deposited amount and the interest earned after 25 years would be the individual’s net worth.
   • Total Amount = Total Deposits + Total Interest
   • Total Amount = INR 37,50,000 + INR 65,58,015
   • Total Amount ≈ INR 1,03,08,015

So, by consistently depositing INR 1.5 lakh annually into their PPF account, the individual would amass approximately INR 1.03 crore in 25 years, taking into account the interest earned. This demonstrates how disciplined and sustained investments can lead to significant wealth accumulation over time.

If you accumulate more than INR 1 crore in 25 years through investments, such as in a PPF account, you won’t be required to pay tax on the returns. This is because the amount falls under Section 80C, and investments like those in PPF are exempt from income tax. The money in a PPF account cannot be seized or recovered as a penalty or liability.

Investments in the Public Provident Fund (PPF) do not come with guaranteed returns. The returns on PPF are not linked to the stock market, and the interest rates on PPF are determined by the government. The government reviews the interest rates on PPF periodically, typically on a quarterly basis. Therefore, the returns on PPF are subject to change based on government decisions and economic conditions, and they are not guaranteed. It’s important for investors to be aware of this and consider it while making investment decisions.

An individual can open only one PPF account. They can choose to open this account either at a bank or a post office. It is not permitted to have more than one PPF account at the same time. If someone accidentally opens two accounts, one of them will be considered irregular, and regular contributions can be made to only one account. It’s essential to keep in mind that transferring funds between PPF accounts at different locations is not allowed. If someone mistakenly opens two PPF accounts, they should designate one as the regular account and make contributions only to that account.

For the treatment of a serious illness, it is possible to withdraw funds from a PPF account before the completion of the mandatory lock-in period of five years. However, this withdrawal is subject to certain conditions and requires approval from the medical authority. If an account holder wishes to close their PPF account for the purpose of dealing with a life-threatening illness, they can do so before the completion of five years. After that period, they are eligible to make partial withdrawals for medical treatment. It’s essential to obtain necessary approval from the medical authority to avail of this benefit.