Power of Rs 1,50,000 PPF Investment: In how many years may you generate Rs 92,000/month income, create Rs 1.55 cr tax-free corpus from Public Provident Fund?

Power of Rs 1,50,000 PPF Investment: The purpose of small savings schemes is to empower investors who want financial well-being from their small investment. But the same small savings schemes can be used to build a sizeable corpus or generate a substantial passive income for life.

When we talk about Public Provident Fund (PPF), it is one of the new exempt-exempt-exempt schemes that can help an individual create a tax-free corpus and monthly income. 

In this article, we will discuss how a Rs 1,50,000 yearly PPF investment may generate a tax-free income of nearly Rs 92,000/month for many years and a tax-free Rs 1.54 crore retirement corpus. Know how it may be possible.

How to open PPF account

An individual can open a single or a joint PPF account in a post office or a bank with a minimum investment of 500.

They need to deposit at least Rs 500 to keep their PPF account active, or else it will turn dormant.

The maximum investment allowed in a financial year is Rs 1,50,000. 

PPF interest rate

The PPF interest rate is 7.1 per cent credited and compounded yearly. 

The rate remains the same in a post office or a bank.

If an investor invest Rs 1,50,000 before April 5 every financial year, they can get the highest benefit of the interest earned.

PPF maturity period

PPF has maturity period of 15 years. After completion, a PPF account holder can withdraw 100 per cent of their investment amount. 

PPF investment options after maturity period

After completion of 15 years, a PPF account holder may take unlimited extensions of 5 years each.

They may contribute or choose not to contribute during their extension period.

In both cases, they will keep getting interest on their deposited amount.

But if the account holder decides not to contribute, they are not allowed to continue the extended account for more than 5 years.

In such a case, they can withdraw 100 per cent of their corpus any time during the 5-year extension. 

If they contribute, they can take unlimited 5-year extensions and withdraw up to 60 per cent of their corpus once in a financial year.

The maximum withdrawal limit of 60 per cent is of the balance credit at the time of maturity in the block of 5 years.

How you may generate Rs 92,000/month income from PPF investment 

For this, one needs to start investing Rs 1,50,000 a financial year for 15 years in row.

Then take 3 extensions of 5 years each and keep contributing the same amount for 15 years more.

The amount needs to be contributed before April 5 to make most of the interest rate.

PPF corpus in 30 years

In 15 years, the total investment will be Rs 22,50,000, the estimated interest will be Rs 18,18,209, and the estimated corpus will be Rs 40,68,209.

In 30 years, the total investment will be Rs 45,00,000, the estimated interest will be Rs 1,09,50,911, and the estimated value will be Rs 1,54,50,911.

After 30 years of investment, if they withdraw just the interest part from the accumulated corpus, it will be Rs 10,97,015 a year. On a monthly basis, it will be equal to Rs 91,418.

What will happen if one takes another PPF account extension

After 30 years of investment, one may take another 5-year extension and stop investing Rs 1.50 lakh a financial year.

At this stage, they may invest just Rs 500 a financial year to continue their PPF account. 

Even if they invest Rs 500 a financial year, they may keep withdrawing Rs 10,97,015 yearly interest from their corpus for decades.

What is interesting, there Rs 1.54 crore corpus will remain as it is. They may withdraw it anytime during their lifetime and discontinuing the account.
Since PPF is an EEE category scheme, the monthly income and the corpus will be tax-free.

(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)