The Public Provident Fund, or PPF, is the common man’s tool to build a significant corpus in the long term for financial security in the long term. In fact, even if one can contribute Rs 1,000 or Rs 2,000 in a PPF account, it can create a big pool.
The most useful feature of PPF is that a parent can create a PPF account for his/her kid after birth. If such a minor account for a minor is opened, the person can continue investing in it for 50 or more years. This allows the power of long-term compounding to play out to the benefit of the account holder.
Rs 1,000 a month
Let’s see what Rs 1,000 invested every month over 50 years can generate. Let’s assume for all the following calculations that the interest rate remains steady at 7.1%, the current rate.
If someone has the discipline to continue investing a paltry Rs 1,000 a month in a PPF account for 50 years, the total amount will come to Rs 54,06,079 (Rs 54.06 lakh).
Rs 2,000 a month
If this amount is doubled to Rs 2,000, the account can make the investor a crorepati easily. The total maturity amount after 50 years from the beginning of contributions will become Rs 1,08,12,158 (Rs 1.08 crore).
In fact, if one can keep investing Rs 2,000 each month, the Rs 1 crore mark is achieved after the 49th year itself. In other words, if someone wants to become a crorepati, it will be achieved a year earlier.
An important date
One can invest in PPF every month or once a year or even intermittently, with at least once a year as a necessary condition. But if someone invests every month, one should do so before the 5th day of every month.
If you think 50 years of investment is not possible in the life of an individual, you are overlooking the fact that one can begin investing at the age of just 1 or 2 years if the parents have the foresight. If a kid’s parents start contributing to a PPF account when he/she is 5 years, the 50th year happens when he/she is just 55, or still 5 years away from retirement. This humble amount contributed every month can amass a sizeable sum for security in life after 60.
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