PPF is one of the best options to save money for post-retirement life. It is offered by the government as a long-term scheme, involving a minimum investment each year.
The interest on this amount is compounded annually, which yields great results. So, to make our lives a little easier, and to allow us to calculate and plan our PPF investments, we have access to a PPF Calculator.
For someone who wishes to invest in a PPF, this calculator can help you with the amount to invest, and how much return it can get. Once you know how much you would like to invest, along with a tenure, say 15 years (minimum), it will automatically calculate and present you with the possible returns.
The minimum amount you can invest is 500 rupees only, which makes it affordable for all the citizens.
What is PPF?
PPF refers to the Public Provident Fund. It is an initiative by the Government of India, that allows citizens to save a percentage of their earnings for post-retirement expenses. The amount could be between Rs 500 to Rs 1.5 lakh, for one financial year.
The idea is to save some amount of money that can also earn you interest over time. This interest is compounded annually between the 5th of every month, to the last date.
Another important thing to note is that this account can be opened for only the citizens of India and one person can have only one account in his/her name.
The reason why this fund is widely opted by investors is because it earns tax-free returns. Also, these funds will always be debt or liability-free, no matter what the financial situation of the person is.
The minimum tenure for the investment must be 15 years. However, you are also given the option to withdraw a partial amount of the money after the 7th financial year. From the 3rd till the 6th financial year, a person is eligible for a loan, as he cannot withdraw money at that point.
This loan can be availed at the interest rate offered by the PPF, plus an additional 2%.
In case a person fails to invest for a few years, his account will automatically be closed. However, it can be reopened by paying the total amount for all the years missed, along with a penalty fee of Rs 50 for each year missed.
To gain more clarity about this fund, let’s look at the formula used to calculate the PPF returns, along with an example. This formula is widely used to calculate the interest earned at the end of a year.
F = P[({(1+i)^n}-1)/i],
Here, i = rate of interest
n = Number of years
P = Annual installments
F = Maturity of PPF
So, imagine a person pays 1.5 lakh rupees annually as his PPF investment. The rate of interest would be 7% per annum, for a period of 15 financial years. Based on the formula, the maturity at the end of the closing year will be equal to almost Rs. 40,68,209.
As we can see, an investment of roughly 22 lakhs has earned 18 lakh rupees as interest, making the total returns around 40 lakh rupees.
Let’s break it down for each year, and see how it works.
For the first financial year, when the opening amount was 0 rupees, the person decided to invest 1.5 lakhs. This amount earned an interest of 11,400 rupees at the end of the year, making it a total of 1,61,400 rupees.
Now, this figure becomes the investment amount for next year, along with the annual deposit of 1.5 lakh rupees. In the second financial year, the amount will become 3,35,066 rupees.
If we continue the same process for 15 years, we will reach a total interest of 18 lakhs and therefore, the total claim at maturity will be 40 lakhs for a 22 lakh rupee investment.
Benefits of PPF and Its calculator
When it comes to evaluating the potential risks in an investment, everybody needs a sense of security. The PPF gives the consumers many reasons to trust its process.
If we consider a PPF, there is no reason to worry as the entire policy is backed by the country’s Government. Anyone who wishes to create an account can go to any national, public or private bank and also any of its branches.
An account can even be created at your nearest post office. This shows the wide reach of this policy and its stability in the market.
A PPF is more attractive than a Fixed Deposit (FD), and also guarantees better returns. The interest rates offered by a PPF account are much better, with lesser risks and high rewards.
Even though the money in a PPF is locked for a minimum of 15 years, unlike a FD, there are provisions to withdraw a certain amount of money after 7 years.
As the PPF falls under the EEE (exempt-exempt-exempt) Category, it allows us to enjoy tax-free returns. Money invested in a child’s account or a spouse’s account will also be free from any kind of tax.
This investment tool is better than most available in the market today. If planned carefully, the tenure can be further extended to 20 years or more, thus increasing the returns and saving to a larger degree. This helps you completely prepare for times when you might need such large amounts of money.
Now that we have covered everything about the Public Provident Fund, let's consider what benefits we can get from its calculator.
Below are a few points mentioned that will help you understand the advantages of an Online PPF calculator.
- The most important feature of this calculator is that it tells you the exact amount of returns that can be generated from your investment. It does not deal in approximates.
- If the right choices are made, this tool can help you save a lot of money and avoid hefty taxes.
- You can use it multiple times until you find the perfect balance, as per your lifestyle.
- It eliminates any scope of error, as it is fully automated. Also, some portals do not even allow manual entry of data and instead provide a scrolling bar, etc. To denote your amount and years.
- It also helps in finding the perfect maturity period as per your convenience.
- It gives you an accurate estimation of the total investment in a financial year.
- Helps you save more while preparing for your taxes.
By now you must have realised the importance of this tool and the fund as an investment tool. Without it, we would have to perform all calculations with the risk of errors at each step.
We may even end up at a wrong sum. The PPF is a must in everybody’s life as it takes little to no investment and gives amazing returns.
How to use PPF Calculator?
A PPF calculator can perform the cumbersome task of calculating the total amount, within a fraction of seconds. At the same time, it is extremely easy to use. It is available online and is self-explanatory. The calculator will help you predict and plan without having to perform any calculations or exposing your savings to risks.
Let’s see how to use the PPF calculator.
As mentioned before, this calculator is very user-friendly and doesn’t need a rule book. There are four major parameters which are, frequency of investment, principle amount to be invested each year, rate of interest and the time period.
As per your requirements, you need to fill in values, and the tool will generate results. It will show you the total interest you can earn at the end of the tenure.
Essentially, there is only one step to this process and that is to enter your details, and a few seconds later, you will be able to see the maturity amount.
It is important to note that the interest rate is not constant and will be affected by the inflation rate.
Conclusion
We hope that throughout the article, we successfully gave you valid reasons to avail this fund and use the calculator to make your process easier. This fund quickly becomes the first choice of a consumer who wishes to invest for a longer duration and get great returns.
The PPF calculator is an add-on feature that makes this process much more accessible. Not only does it eliminate the errors, it also provides fast and accurate insights for better judgement and decision-making.
Frequently Asked Question
Q1. How is PPF interest calculated?
Ans. The interest is compounded annually on the total amount. To calculate this interest, there is a simple formula is available to us.
F= P[({(1+i)^n}-1)/i], where ‘F’ is the maturity claim amount, ‘P’ is the investment amount, ‘i’ is the rate of interest, and ‘n’ is the number of years.
After putting in these values, we can easily get to a number. With the help of this formula, the calculator eliminates any scope of error.
Q2. Can I open 2 PPF accounts?
Ans. No. An Indian citizen can open only a single PPF account in their name. You are allowed to transfer your account from one bank to another, but are not allowed to have multiple accounts under your name.
An parent or guardian can open an account for their minor, under the child’s name. This is to ensure that no one misuses the scheme.
Q3. What is the minimum lock-in period for PPF?
Ans. The minimum lock-in period for a PPF is 15 years. This fund aims at saving your money for a long period, thus meeting your post-retirement needs. Having said that, the fund also provides a provision wherein you are allowed to withdraw money after a certain period.
Note that the maximum tenure for the PPF is 50 years.
Q4. What is the minimum amount required to start investing in a PPF?
Ans. To make the PPF accessible to all citizens of the country, the minimum amount has been set to Rs 500 per year. You can also choose to invest monthly, quarterly, semi-annually, or annually.
The maximum amount a person could invest in this fund is 1.5 lakh per year. Even a low investment of 500 rupees a year could yield you more than 6,000 rupees of interest after 15 years.
Q5. Is PPF investment is Tax-free?
Ans. Yes. The best part about this fund is that all your returns will be tax-free. As this fund is intended for post-retirement benefits, the Government does not impose any taxes on your earnings.
Q6. What happens if I miss my contribution to PPF for a year?
Ans. In case you miss a year or two, you will be required to deposit a minimum of Rs 500, for each year missed. Along with this, a penalty of Rs 50 will be applicable for each year missed.
Q7. When is my PPF investment going to mature?
Ans. It takes a minimum of 15 years for your investment to mature. After this period, you can either withdraw the entire amount, or extend your time to a maximum of 50 years.
There is a provision for you to avail a loan after your 7th year and also partially withdraw some amount from your PPF investment. Note that an individual can withdraw the full amount in the fund only after a minimum duration of 15 years.