PPF - The Investment, The Myth, The Legend

As your financial co-pilots, it's our duty to guide you through smart money moves. Today, we're highlighting a golden chance with the Public Provident Fund (PPF). If you deposit on or before the 5th of this month, you earn interest for the entire month!

What is the PPF ?

The Public Provident Fund (PPF) is a safe investment choice in India, with tax-free benefits and solid returns backed by the government. Ideal for long-term goals, it offers tax deductions and comes with a secure interest rate. Minimum annual contributions are as low as ₹500, making it accessible for all. Its 15-year term fosters savings discipline, while partial withdrawals add flexibility.

Case in Point: Aman Vs Raman

To illustrate the difference in returns between Aman and Raman's PPF investments over 10, 15, and 20 years, we will highlight the total returns and the opportunity cost for Raman when he invests after March 5th, effectively in the next financial year, where as Aman, being a smart lad he is, invests before April 5th i.e. starting of the financial year. Given:

• Both Aman and Raman contribute ₹1,50,000 annually.
• Aman invests before April 5th each year.
• Raman invests after March 5th each year (in the next financial year).

We will assume a fixed annual interest rate of 7.1% for the entire duration.

Highlights:

• After 10 years: Aman accumulates approximately ₹23,56,465. Raman has approximately ₹22,24,355. Raman misses out on about ₹1,32,110 due to delayed interest compounding.
• After 15 years: Aman's returns grow significantly to approximately ₹34,92,985. Raman's returns are about ₹32,78,295.Raman misses out on about ₹2,14,690 Raman misses out on about ₹2,14,690 now, as the compounding effect intensifies over a longer period.
• After 20 years: Aman's PPF account reflects a substantial sum of approximately ₹48,77,125. Raman's total is around ₹45,54,265. Raman misses out on approximately ₹3,22,860 as he invests at the end of each financial year.

So you see, how timely investment reaps compounding returns in the future.

Perks of PPF

• Secure and Guaranteed Returns: Backed by the Indian government, PPF offers you peace of mind.
• Tax Efficiency: PPF investments embody the EEE (Exempt-Exempt-Exempt) principle - your contributions, the interest earned, and the maturity proceeds are all tax-exempt, making it an exceptional tax-saving vehicle.
• Flexibility: Though it's a long-term commitment, partial withdrawals and loans against the balance can be made, keeping your financial needs in sync.

Busting PPF Myths

• PPF vs FD: Unlike Fixed Deposits (FDs), PPF offers tax-free interest and is not taxed upon maturity.
• PPF vs MF: Mutual Funds (MFs) can offer higher returns but come with market risks, unlike the stable, government-backed PPF.
• Withdrawal Misconception: Partial withdrawals from PPF are indeed possible from the 7th year on-wards.
• Tax Misunderstandings: PPF is entirely tax-free, from the principal invested to the interest earned and the returns at maturity.

Simplify Money's Promise: We're here to clear the fog on financial decisions.