How to Calculate PPF Returns?

Calculating returns on PPF onlineis not a difficult task provided you follow some basics involved in the entire process. PPF, as you may already know, is one of the most preferred, safest and long-term investment schemes supported by the Central Government for a period of 15 years at least. The fund helps in earning attractive interest on your investment while also ensuring handsome tax deductions and exemptions both in terms of the interest and maturity amount. The investment amount required varies between Rs. 500 and Rs. 1,50,000.

Calculation of PPF returns

Calculation of PPF returnsis a simple task. Using an online calculator for PPF returns is the best way to calculate the overall interest and the returns that you gain from your investment. Several calculators are readily available online and the calculation procedure is quite easy and only takes a few seconds, encompassing multiple aspects like the tenure, rate of interest, type of deposit, i.e. monthly or yearly and so on. Here are the key details in a nutshell:

  • Tenure of PPF– 15 years to 50 years with an option for extension by 5 more years.
  • Payment frequency– Quarterly, monthly, annually or semi-annually.
  • Deposit Amount– The amount that will be deposited based on this frequency, i.e. suppose you are depositing a sum of Rs. 2,000 each month or Rs. 25,000 every year.
  • Rate of Interest– The anticipated return rate on PPF or prevailing rates of PPF will be available online for calculation purposes.

Vital aspects to keep in mind

Online PPF calculators have several aspects that will be clearly outlined. These include the following:

  • Opening balance– Balance in PPF at the beginning of any financial year.
  • Deposited amount– Balance at the end of any year after making the deposits.
  • Interest- Online tools help in calculation of interest on PPF on the basis of the balance at the end of the year. Interest is annually compounded on the basis of the formula for compound interest.
  • Closing balance– This refers to the balance at year-end post inclusion of interest that is earned and additional deposits that have been made round the year.
  • Maximum loan– Investors can apply for getting loans on their PPF which is allowed after completion of the third year and till the conclusion of the 6th year. The maximum loan amount is the same as 25% of the opening PPF account balance for the earlier year. After the 6th year, no loans are given although withdrawals are allowed.
  • Withdrawals- Partial withdrawals are allowed from the 6th year which is equivalent to 50% of the closing balance of the earlier year from which withdrawal has been made or 50% at the close of the 4th year before the year in which the withdrawal facility was selected, whichever is lower.

As per regulations of PPF investments, the interest is calculated on a monthly basis although it is credited into accounts at the end of the financial year on the 31st of March, 2020. Interest will then become payable for that particular month in case the deposit is made prior to the 5th of a particular month. A minimum amount of Rs. 500 can be invested and a maximum amount of Rs. 1.5 lakh is possible in a specific financial year. The latter option may help you earn the maximum deduction under Section 80C although this section also covers investments made in life insurance, ELSS and other commonly held investment options including tax-saver FDs.

However, there are very few such secure investment options as PPF. This investment option will give you the option to sizably accumulate wealth over a long duration. You can actually invest in PPF for planning out your retirement and building up a corpus for the future. This kitty will be completely free from tax including the interest earned and the final amount withdrawn upon maturity. Hence, this is one advantage that you will always enjoy in tandem with competitive and lucrative rates of interest. This makes it a must in every investment portfolio if you are okay with long-term investments and lower liquidity levels alike. Over a period of time, it can add substantially to your bank balance and help you achieve a smoother retirement.

Why is PPF a good investment?

Public Provident Fund (PPF) makes for a good investment for various reasons. The higher rates of interest are a major advantage for PPF. It is hard to find investment options that surpass inflation and PPF is one of the oldest and most attractive options with interest rates hovering from 7% and upwards. Interest rates on bank fixed deposits (FDs) are comparatively lower than PPF interest rates. PPF offers higher rates of at least 1% and upwards.

PPFs enable maximum investment up to Rs. 1.5 lakh in a particular financial year while the minimum investment amount is Rs. 500 annually. You can accumulate more than Rs. 1 crore at an interest rate of 7% or slightly more within 3 decades by investing Rs. 10,000 each month as per approximations. The interest that you earn on maturity is free from taxation as well. The account matures in 15 years but you can extend it by another 5 years. Such extensions may be availed several times. The interest earned being tax-free, you save a considerable sum in taxes. You also get Section 80C deductions on PPF investments up to a maximum of Rs. 1.5 lakh. You can also start withdrawing money after 5 years although 1% interest will be deducted from the opening date. Partial withdrawal and loan benefits can also be availed against PPF investments. The maximum amount that you can get as your loan from the PPF account will be 25% of the overall amount that is accumulated in the PPF account by the end of the second financial year preceding the year in which you applied for the loan in question. These are some of the key reasons that make PPF an excellent investment option for everyone.


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