Public Provident Fund (PPF) can be a vehicle to get a sizable retirement corpus and a regular lifetime monthly income. Regular PPF investment would help one create a retirement corpus to meet several of their financial objectives. Find out how one may build about Rs 43,000 tax-free lifetime monthly income from long-term PPF investment and an over Rs 1 crore income tax-free retirement corpus.
PPF Usually utilised for the diversification of retirement corpus is Public Provident Fund (PPF), for regular income. This fixed interest rate small savings plan is non-market-linked and can help a retirement corpus remain stable over lengthy terms. It can be used in a combination with market-linked investment choices to combine retirement portfolios across investors. A PPF investment offers a long-term investment choice that can not only produce an income tax-free retirement corpus but also give an alternative to produce a tax-free lifetime income. Long term, a Rs 1,50,000 yearly investment in PPF can enable one build a tax-free retirement corpus of about Rs 1 crore and a lifetime monthly income of almost Rs 43,000. Know how that could be feasible!
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PPF investment for a retirement corpus planning
PPF computes a 7.1% annual interest rate compounded yearly. A post office or a bank can open the PPF account. In a financial year, one can fund their PPF account with minimum of Rs 500 and maximum of Rs 1.50 lakh.
How may one maximise PPF investment?
One will maximise the 7.1% interest return on their PPF investment if they deposit between April 1 and 5. Every financial year, March 31 sees the credit of interest.
The compounding power in PPF investments
Given compound interest, the investment increases with time more quickly. With an annual investment of Rs 1,50,000, let us find what corpus it may create in 15 and 30 years.
PPF investment: The power of compounding
PPF Investment in 15 years will be Rs 22,50,000; projected capital gains will be Rs 18,18,209; the projected corpus will be Rs 40,68,209.
Investment will be Rs 45,00,000 in 30 years; projected capital gains will be Rs 1,09,50,911; the projected corpus will be Rs 1,54,50,911.
For old regime taxpayers, the interest earned, and the retirement corpus are tax-free in PPF under exempt-exempt-exempt status, up to Rs 1.50 lakh in a financial year.
Loan from PPF
One can get a maximum loan of twenty-five percent of the PPF balance. On this loan, the annual maximum interest rate is six percent.
PPF matured term
The maturities of PPF are fifteen years. An account holder can either take the money after 15 years or extend the account for more blocks of five years either with or without investment.
PPF withdrawal guideline during the extended period
A PPF account holder can make one withdrawal in each financial year during the extension term subject to a maximum limit of 60% of the balance credit at the time of maturity in the block of five years.
How may one obtain tax-free corpus from PPF with lifetime monthly income?
They must so commit Rs 1.50 lakh/year for thirty-one years. Following that, they can withdraw 60% of their capital and let the rest grow to pay Rs 43,000 monthly from the following financial year. Let’s find out how this arithmetic turns out.
PPF retirement corpus after thirty-one years
The total investment in 31 years will be Rs 46,50,000; expected interest will be Rs 1,20,58,575; and the estimated maturity will be Rs 1,67,08,575.
Tax-fee corpus following 60% withdrawal
A 60% pullout from a corpus of Rs 1,67,08,575 after 31 years will result in Rs 1,00,25,145. This sum qualifies as tax-free.
The remaining sum after this withdraw will be Rs 66,83,430.
Tax-free corpus following a 60% withdrawal
We cannot withdraw for one financial year since we have run out of our withdrawal limit for the year; yet, we will obtain a 7.1% on the remaining corpus.
Retirement corpus designed for lifetime monthly income
On a Rs 66,83,430 retirement corpus, the interest will come out to be Rs 4,74,53. That means the retirement corpus following a year will be Rs 71,57,504. One could create a monthly income from this sum.
Interest of Rs 71,57,504 corpus
From now on, we will only take out the interest from the corpus. At a 7.1% interest rate, it comes to Rs 5,11,794. It comes out to be Rs 42,649 every month.
