For many people in the country, retirement planning is not about getting high returns but creating a secure, predictable and tax-free source of income. This is where the Public Provident Fund (PPF) stands out. With disciplined investment and long-term patience, PPF can help you build a retirement corpus of Rs 1 crore and earn interest income of around Rs 61,500 per month, without touching the principal amount. Let us also tell you how?
Why is PPF a preferred retirement tool?
PPF has been one of India’s most loved long-term savings schemes for decades. It is backed by the government, making it one of the safest investment options. Investors are eligible for tax deduction under section 80C (under the old tax system). PPF is tax-free on maturity.
Currently, the interest rate on PPF is 7.1 percent per annum, and the government reviews the rate every quarter, yet PPF has consistently given good returns compared to other fixed-income products.
Over the past few years, PPF rates have gradually come down from the double-digit levels seen in the 1990s and early 2000s, in line with falling interest rates in the economy. Nevertheless, the effective return at 7.1 per cent – tax-free – remains attractive for conservative investors.
Special rules of PPF
Minimum Investment: Rs 500 every year
Maximum investment: Rs 1.5 lakh every year
Lock-in period: 15 years
Extension allowed: Forever in 5-year blocks
Extension can be done with or without contribution. After completion of 15 years, you will have to submit Form H within one year of maturity to continue contribution.
Interest in PPF is calculated every month (on the lowest balance after the 5th of every month), compounded annually and credited at the end of the financial year.
How to create a fund of Rs 1 crore in PPF
The maximum investment in this scheme is Rs 1.5 lakh, so let us assume that you invest the entire amount every year at an interest rate of 7.1 percent.
investment details
Annual Investment: 1.5 lakh rupees
Interest Rate: 7.1 percent
Investment Period: more than 15 years
corpus growth
15 years: Rs 40.68 lakh
20 years (first 5-year extension): Rs 66.58 lakh
25 years (second 5-year extension): Rs 1.04 crore
So, to reach Rs 1 crore, you have to continue investing for 25 years — that is, 10 years after the initial 15-year maturity.
How can one get a monthly pension of Rs 61,500?
Now suppose after 25 years, you stop contributing and simply leave the corpus invested in PPF.
Total Corpus: Rs 1.04 crore
Estimated Interest Rate: 7.1 percent
annual interest earned
7.1 percent of Rs 1.04 crore = Rs 7.38 lakh every year
Monthly income from interest
Rs 7.38 lakh ÷ 12 = Rs 61,533 per month
This amount can be considered as monthly pension, while your principal amount of Rs 1.04 crore remains intact.
Why does this strategy work for retirement?
Capital Protection Your principal remains safe.
Possibility of regular income: You can get regular cash flow from interest.
No tax burden on tax-free maturity corpus.
The longer you stay invested, the bigger the effect will be.
For conservative investors who do not want to invest money in equities near retirement, PPF can act as a stable income backbone.
Bank vs Post Office: Where should you open PPF?
Whether you open PPF in a bank or post office, the rules and returns remain the same.
Choose a bank if you want easy online access and prefer digital transactions.
If you live in a rural area and prefer to connect with a physical branch, then choose post office.
The benefits are the same. The decision depends entirely on convenience.
Keep these things in mind before investing
The annual limit of Rs 1.5 lakh cannot be crossed.
Long-term discipline is necessary – 25 years is a long time.
Interest rates may change with time.
The effect of inflation should also be taken into account – today’s value of Rs 61,500 may not be the same after 25 years.