One of the most popular investment options is the public provident fund (PPF), it gives you benefits like tax savings under section 80C of the Indian Income Tax law, a long term interest from the funds deposited, and further tax exemption on maturity. The Indian government offers this saving scheme through banks, at a fixed lock-in period of minimum 15 years, and given a fixed return of interest according to the Ministry of Finance. As per the latest government notification, the interest rate on PPF is 7.1 percent effective from 1 April 2020.
The minimum tenure can be further increased in the blocks of 5 years. Moreover, the investment in PPF ranges from the amount as small as Rs. 500 up to Rs. 1,50,000. There can be lump sum investment made or in a maximum of 12 months installments, these investments have to be made at least once a year for a minimum period of 15 years.
You can use the calculator to calculate your investments and can get an idea of how much wealth can be gained with the variable principal and time period. A PPF calculator is an online tool that can help you calculate your PFF interest on your deposits easily and conveniently. – Use a PPF calculator to know your PFF interests well in advance.
Below is the formula for calculating expected interest and the maturity value:
A = P x {([(1+ι)^n]-1)/ι}
Where,
A = Total Maturity Amount
P = Total amount of principal invested
ι = Interest rate expected
n = Time period of the investment amount
Since the time period of the investment amount is rising exponentially, we can conclude that the return will be at the higher end as the time period increases.
To understand the concept in a better manner, let us look at an example of compounding interest and its effect on overall investment for three different tenures.
Mr. Ram Lal invests Rs. 10,000 per year at the interest rate of 7.1 % ( current PPF rate)
Tenure 1: 15 years
Tenure 2: 20 years
Tenure 3: 30 years
Investment Tenure | Total Amount Invested | Wealth Gained | Total Corpus Created |
15 years | ₹ 1,50,000 | ₹ 1,21,214 | ₹ 2,71,214 |
20 years | ₹ 2,00,000 | ₹ 2,43,886 | ₹ 4,43,886 |
30 years | ₹ 3,00,000 | ₹ 7,30,061 | ₹ 10,30,061 |
This helps us understand the importance of compounding of interest in the PPF scheme and must have given you a clear picture of the role of principal and time period which plays an important role in wealth creation. – Use a PPF calculator & find out the interest on your PPF deposits.
There is a return of 7% to 8% historically on the interest. This rate is higher than the rate offered by savings accounts and Fixed deposits.
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