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To date, I haven’t understood why some — actually many — financial experts advise you to not save-up your money in a Public Provident Fund account. Thankfully, I’m not in that camp of thought. I have always encouraged you to save the maximum allowed limit (currently Rs 100,000) each year in your PPF account. In fact, I wrote this post as soon as I came home having made my annual deposit into my PPF account. Let me tell you that I was very happy when I saw the interest credited for the past financial year (though not as happy as I could have been).
Let’s make some simple calculations –
Let’s suppose that you’ve managed to save-up a total of Rs 500,000 in your PPF account over a period of 10-years. In the 11th year, at the current rate of interest, you’d get Rs 44,000 (!) purely as interest earned. In the 12th year, you’d get nearly Rs 48,000 (!!) purely as interest earned. In the 13th, you’d get nearly Rs 52,000 (!!!) purely as interest earned. This continues to only increase according to the laws of compounding.
Seriously, what’s not there to like about that? Don’t forget that the amount that you put-in, the interest that you earn, and the amount that you withdraw are all income-tax free. There’s no need for you to worry about whether the capital markets are headed-up or headed-down or headed-nowhere. What more should the PPF account offer to convince the financial experts? (Hint: With equity there’s something to write about each day and get you to take action/change course but with the provident fund there isn’t.)
But here’s a previous post with an extremely healthy debate in the comments section where readers suggest various other options including the Employees Provident Fund and SIPs in Mutual Funds. I encourage you to read that article in its entirety.
As I’ve commented over there, it’s not an either this one or that one decision. In fact, I’m currently invested in all three forms. Just that I’m a lot peeved when someone says that the Public Provident Fund isn’t a worthy option and especially when that advise is geared towards a younger audience. Suppose you start at 23, by the time you’re in your early 30s, you’d be making a cool Rs 50,000+ per year (per the example above) simply in interest alone. And if you managed to save-up a whole lot more, you’d be making an even cooler amount as interest earned.
Seriously, don’t listen to those financial experts! Show them what an expert you are!!
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