How to Earn 1 crore in India by investing money in PPF
earn 1 crore from PPF

How to Earn 1 crore in India by investing money in PPF

On 31st March 2020, the Ministry of Finance reduced the interest rate on the Public Provident Fund (PPF) to 7.1% from the earlier rate of 7.9%.  

A direct impact is that you will earn a lower amount of interest on your PPF savings for the first quarter of the present financial year 2020-21. 

But the rate cut also means that the time period required to accumulate a target wealth amount will increase further. This is an indirect impact of the PPF rate cut.

Graph showing comparison of time period with 7.1% and 7.9% PPF rate

Let me explain a bit. 

Suppose you are planning to save Rs. 1 Crore (target wealth corpus) for retirement by investing Rs. 12,500 per month (yearly Rs. 1.5 Lakhs) in PPF. This is the maximum amount that one can invest in PPF.

At a 7.9% rate of interest, in 15 years your PPF account would have accumulated Rs. 43,60,517. This is where the lock-in period of PPF investment gets over. 

In order to achieve your target, you need to extend the maturity by a block of 5 years. Keeping the same amount of contribution of Rs. 12,500 you will achieve Rs. 1 Crore in 23.4 years. The exact wealth corpus at the end of 24th year will be Rs. 1,06,57,015. 

YearPrincipalInterestWealth Corpus
115000011850161850
231185024636336486
348648638432524919
467491953319728237
587823769381947618
61097618867121184330
713343301054121439742
815897421255901715331
918653311473612012692
1021626921708532333545
1124835451962002679745
1228297452235503053295
1332032952530603456355
1436063552849023891258
1540412583192594360517
1645105173563314866848
1750168483963315413179
1855631794394916002670
1961526704860616638731
2067887315363107325040
2174750405905288065569
2282155696490308864599
2390145997121539726752
24987675278026310657015

PPF interest rate now reduced to 7.1% the time period required to reach Rs. 1 Crore will get extended. 

Now at maturity (completion of 15 years), your PPF account would have a lower amount of Rs. 40,68,209.  

Whereas, you will reach the target of Rs. 1 Crore in 24.6 years. For this, you will need to invest additionally in your PPF account for 14 months. The additional capital contribution will be Rs. 12,500 x 14 months = Rs. 1,75,000.

 The exact amount in your PPF account at the end of the 25th year will be Rs. 1,03,08,015. 

YearPrincipalInterestWealth Corpus
115000010650160650
231065022056332706
348270634272516978
466697847355714334
586433461368925701
61075701763751152076
71302076924471394524
815445241096611654185
918041851280971932282
1020822821478422230124
1123801241689892549113
1226991131916372890750
1330407502158933256643
1434066432418723648515
1537985152696954068209
1642182092994934517702
1746677023314074999109
1851491093655875514696
1956646964021936066889
2062168894413996658288
2168082884833887291677
2274416775283597970036
2381200365765238696558
2488465586281069474664
25962466468335110308015

The above calculation is made by keeping the rate the interest to be fixed at 7.1% for the rest of the tenure. But actually the rate of interest is revised by the Ministry of Finance for each quarter. 

The  historical PPF rates have come down in the last 10 years, the details of which is under:

PeriodPPF Rates
March 2009 – March 20128.6%
April 2012 – March 20138.8%
April 2013 – March 20168.7%
April 2016 – September 20168.1%
October 2016 – March 20178.0%
April 2017 – June 20177.9%
July 2017 – December 20177.8%
January 2018 – March 20187.6%
April 2018 – September 20187.6%
October 2018 – March 20198.0%
April 2019 – June 20198.0%
July 2019 – March 20207.9%
April 2020 -June 20207.1%

If the rates dip lower, suppose to 6.5% then you will need to wait for one more additional year (26th year) to achieve your target wealth corpus of Rs. 1 Crore. 

YearPrincipalInterestWealth Corpus
11500009750159750
230975020134329884
347988431192511076
466107642970704046
585404655513909559
61059559688711128430
71278430830981361528
81511528982491609778
917597781143861874163
1020241631315712155734
1123057341498732455607
1226056071693642774971
1329249711901233115094
1432650942122313477325
1536273252357763863102
1640131022608524273953
1744239532875574711510
1848615103159985177508
1953275083462885673796
2058237963785476202343
2163523434129026765245
2269152454494917364736
2375147364884588003194
2481531945299588683152
2588331525741559407307
26955730762122510178532

Alternate Option

Instead of putting all your money in PPF, you can diversify your portfolio by investing half of the money into mutual funds or long term equity shares to get higher returns. 

For example, you can invest in mutual funds to earn 14 to 16% returns. 

This will help you achieve your target corpus earlier. Additionally, diversification will also reduce the risk of your investment portfolio.

Suppose you invest 50% of the portfolio (Rs. 75,000) in PPF at 7.1% and the rest 75,000 rupees in a mutual fund with expected returns of 15%,  then you can achieve Rs. 1 Crore of wealth in 19 years.  

YearPPF & MF Annual Investment PrincipalInterestPPF A/cPrincipalReturnsMF A/cTotal Corpus
175,00075000532580325750001125086250166575
275,0001553251102816635316125024188185438351791
375,0002413531713625848926043839066299503557992
475,0003334892367835716737450356175430679787845
575,00043216730684462851505679758525815301044381
675,00053785138187576038656530984807550101331048
775,000651038462246972628300101245019545111651773
875,00077226254831827092102951115442711839382011031
975,00090209264049966141125893818884114477792413920
1075,0001041141739211115062152277922841717511962866258
1175,0001190062844941274556182619627392921001253374681
1275,0001349556958191445375217512532626925013943946769
1375,00015203751079471628322257639438645929628534591174
1475,00017033221209361824257303785345567834935315317788
1575,00018992571348472034105356853153528041038106137915
1675,00021091051497462258851417881062682248056327064483
1775,00023338511657032499554488063273209556127278112281
1875,00025745541827932757348568772785315965408869298234
1975,000283234820109730334456615886992383760826910641713

Conclusion 

The time period of PPF investment increases for achieving the target corpus due to the lowering of the interest rate. For that matter, this will happen with any interest-bearing instrument.

Looking at the present PPF rate scenario, one can assume that 24 – 26 years will be required to meet the goal of reaching Rs. 1 Crore.

The alternate investment option would be to achieve your target amount of Rs. 1 Crore by investing long term in stocks or through mutual funds that have the potential to generate higher returns.

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