Ask the Readers: PPF and Retirement

by Vinaya HS on August 23, 2010

in Finance

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Suppose you start at the age of 30. You save the maximum possible (currently, Rs 70,000) each year for the next 30 years. Then,

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{ 12 comments… read them below or add one }

Vinay August 23, 2010 at 11:43 PM

Dear Vinaya- Along with PPF you need have a ELSS also for enabling 1 Lakh slab. Also a 4/5 good long term SIP on MF would help you to achieve your goals.

Vinaya H S August 24, 2010 at 1:06 PM

From my calculations, Rs 70,000 per year x 30 years at 8% compounded gives a corpus of nearly 80 lacs. Might not be adequate enough 30 years down the line.

Boomboom August 24, 2010 at 1:46 PM

With the rate of inflation taken into account I dont think just PPF will be enough 30 years down the line. But yes it can be one of the many investments that you can make. All of them coupled together will be enough.

Vinaya H S August 26, 2010 at 3:47 PM

At the time of writing this analysis, 75% of you believe that the PPF can be a retirement tool in itself whereas most of you who said the opposite believe that the PPF can and should be one component of your retirement portfolio.

The verdict is clear though: You ought to have a PPF account.

Side thought: If, instead of 30 years, you save in the PPF for 35 to 40 years, the accumulated corpus should be more than adequate to retire on.

Sandriano August 26, 2010 at 10:55 PM

Hi Vinaya,

Investing 70% (70,000 out of 1,00,000 under Section 80C) of the limit in PPF is a conservative option of building a retirement corpus. While not completely rejecting this idea of building a retirement option, a better option would be to invest the majority of the investiment into equities and the rest into debt instruments like PPF. And during the course of time, switching the majority portion into debt instruments would be better option.


Vinaya H S August 27, 2010 at 8:51 AM

@Sandriano: You bring up an interesting point — that of debt:equity ratio in one’s retirement portfolio. I’ve been researching on this topic of late. But before I share my thoughts, I’d like to hear yours. What in your opinion should be the debt:equity ratios as one progresses in life?

Sandriano August 28, 2010 at 2:31 AM

Hi Vinaya,

Before I answer your question, I would like to know if you differentiate between a retirement portfolio and an investment portfolio OR you consider both one and the same.


Vinaya HS August 28, 2010 at 5:42 AM


You seem to be reading my mind. I’ve been planning to write a post about why it makes sense to have a separate debt:equity ratio for each of your financial goals as opposed to an overall debt:equity ratio.

So, yes, I do differentiate between portfolios. My thought process is as follows:

Financial Goal => Strategy to achieve this goal => Financial Portfolio (with a particular debt:equity ratio).

Anonymous September 16, 2010 at 10:50 PM

Hi Vinaya,

Apologies for not replying earlier as I was on a vacation and subsequently catching up on the my backlogs.

I very much agree with you that one should have a specific debt:equity ratio for each financial goal. But believe me, it is very difficult to stick to it religiously when you have to maintain more that 2 sets of debt:equity ratios. Hence in my case I have simplified it to only 2 portfolios, atleast for now; Investment & Retirement. Investment here is still a very broad term but the goal here is to build a reasonble corpus through investing in equities mostly.

Coming back to your question “What in your opinion should be the debt:equity ratios as one progresses in life?”. Since your topic was on PPF & retirement, I will restrict my answer to building a retirement portfolio using the 1,00,000 tax saving limit as part of 80C.

The oft repeated strategy is ‘have higher portion in equities if you start young and reduce it as you get older’. Most of the time a 70:30 (equity:debt) is suggested to start off with. (Here equity means ELSS.). And alter it to 30:70 by time you near retirement. But this doesn’t work always. Why? Let us say someone had invested 70:30 in Jan ’08 to start off with. He would rueing for doing so. Most of the ELSS schemes are still languishing below thier Jan ’08. What this means is that 70% of what he had invested has not generated generated any income; worst still it has given negative return in 3 years. If you picture in the 30 years time frame, he has lost out the power of compounding for 3 years straight away. This is huge.

This stategy works fine only for those who track the stock markets actively where by they can dynamically alter their debt:equity ratio based on the prevailing market conditions. Needless to say this a tough ask even for seasoned market players.

A better strategy to construct a retirement corpus would be to go with a 30:70 (equity:debt ratio) and then systematically reduce it to 100% debt when they near the 30 year period (Under debt, preference must be given to VPF and then to PPF. ). Lot of people might think that this is a conservative option but then one must not forget that capital preservation should be a vital ingredient in a retirement portfolio. Also, at the time of writing of this, EPF rates have been increased to 9.5% which make this strategy more lucrative.


Vinaya HS September 17, 2010 at 2:35 PM

I have a question. Could you elaborate more on the “Investment” portfolio bit? Do you do this for meeting a specific consumption goal (say for buying a house or car)? Is there any link between the “Investment” and “Retirement” portfolios?

Sandriano September 28, 2010 at 11:26 PM

Hi Vinaya,

Sure. Currently my Investment portfolio does not cater to any specific consumption goals. The only goal of this portfolio is to build a corpus by investing in equities with atleast a 3-5 year horizon (for each investment made). I have chosen this risky path since I am almost and always biased towards equities and have a passion for stocks. But then if my goals/needs change in future, I may need to restructure my ‘Investment’ Portfolio accordingly.

By the way, there is no link between my Investment and Retirement portfolio. But then if I succeed in building a corpus through my Investment portfolio (I am looking a 30 years down the line), it will serve me in my retirement as well. A wishful thought at this point in time though.


Vinaya H S September 29, 2010 at 10:58 AM


How often do you review the performance of your Investment Portfolio? Do you take cash calls when the investment exceeds a certain return?

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