There are times when people overestimate the ability of basic guaranteed return programs to build a sizable retirement portfolio. By guaranteeing that you receive the promised interest and protecting your principal, these programs offer significant benefits. Retirement planning is made easier because you know exactly how much your investment will increase over time. The fact that plans like the Public Provident Fund (PPF) require little intervention is one of their biggest benefits. You plant it and let it grow.
Magic of compounding aka consistency
Consistency is the key to growth and this certainly rings true for guaranteed return schemes too. Assuming that one starts investing at the age of 30, unbridled and regular investments of ₹1,50,000 every year can amount to more than a crore worth of retirement corpus by the age of 60. While this may seem unreal, the magic of compounding ensures that money grows over money, which means that you earn interest over your investment first post which you earn interest on your interest income too.
For those unfamiliar, persistent investing in guaranteed return schemes can be a strong instrument for accumulating retirement wealth. The power of compounding should not be underestimated. Compound interest is equivalent to reinvesting your returns which allows you to earn interest on your interest in the long run. This boosts the growth of your money over time. The focus is on the term “long”, which suggests that you must be ready to wait and lend the required time to your money to watch it grow.
You can invest with PPF for as little as ₹500 and as much as ₹1.50 lakh annually. The plan matures after 15 years, excluding the fiscal year of account opening, with an annual interest rate of 7.1%. When compared to investments linked to the market, the interest rate offers greater security, despite potential annual fluctuations.
PPF promotes long-term saving with its 15-year maturity period, which is extendable in five-year increments. This suggests that you will keep investing in the same fund for the next fifteen years, which will enable your corpus to increase to a sizeable sum. This is particularly helpful for retirement planning as it enables you to gradually build up a sizeable corpus.
The following illustration helps explain how your money grows slowly and steadily over a period
Yearly investment: ₹1,50,000
Interest on investment: 7.1%
Investment tenure: 30 years
Amounts to
Invested amount: ₹45,00,000
Total interest: ₹1,09,50,911
Maturity value: ₹1,54,50,911
In 30 years, it is thus possible to attain crorepati status (having a corpus of more than Rs. 1 crore) solely through PPF.
Enjoy tax benefits with growth
In addition to being a well-liked retirement fund, the PPF program offers up to ₹1.50 lakh in tax benefits under Section 80C of the Income Tax Act. This can lower your taxable income significantly and result in significant tax savings.
But even with a 7.1% interest rate, inflation can progressively lower the buying power of your money. In thirty years, a crore might not be worth as much as it is today. Therefore, in addition to PPF, it might be wise to think about diversifying your portfolio with higher-growth investments. This could involve stocks or mutual funds, but be sure to take your risk tolerance into account.
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Published: 30 May 2024, 10:24 AM IST