PPF account: You will remain a crorepati despite drawing ₹1 lakh monthly pension for 20 years

PPF Account: A Public Provident Fund (PPF) account is a long-term investment tool for an earning individual because it comes with dual benefits. First, it is a tax-saver investment tool under Section 80C of the Income Tax Act, provided the taxpayer chooses the old income tax regime. Second, it is 100% risk-free and can be used to accumulate wealth to meet financial requirements after retirement.

According to the PPF rules, an investor can open a PPF account in any bank or in a nearby post office by depositing ₹100. However, one must deposit a minimum of ₹500 per annum in their PPF account in one financial year. A PPF account has a 15-year lock-in period, during which an earning individual can deposit up to ₹1.5 lakh in a single financial year, or in a maximum of 12 instalments.

According to tax and investment experts, a PPF account falls under the EEE category, where an income tax payer opting for the old tax regime can claim tax exemption on deposits up to ₹1.50 lakh in a financial year under Section 80C. The PPF interest earned is also tax-exempt under Section 10 of the Income Tax Act. So, the PPF maturity amount is 100% tax-exempted.

However, tax and investment experts maintained that a smart investor can use some tricks in their PPF account and retire rich. On how to remain rich using this PPF maturity amount after retirement, experts batted for a Systematic Withdrawal Plan (SWP), an equity instrument that offers returns of up to 7% in the long term.

Wealth creation tips for PPF account holders

Speaking on how an investor can maximise their return from a PPF account, SEBI-registered tax and investment expert Jitendra Solanki said, “A PPF account has a maturity period of 15 years. But one can extend one's PPF account in blocks of 5 years an infinite number of times.”

The expert said that it enables an investor to continue with this risk-free investment option without withdrawing the PPF maturity amount. When extending one's PPF account for the next 5 years, one can choose an investment option or a non-investment option.

“You should choose a PPF account extension with an investment option, as it would enable you to get interest on both the PPF maturity amount and fresh investments,” Solanki said.

PPF calculator

If an earning individual opens a PPF account at 30 years of age and extends their PPF account on three occasions, then in that case, the PPF account holder will be able to invest in the PPF account for 30 years. Suppose the investor invests ₹1.50 lakh per year in one's PPF account. After 30 years, the PPF maturity amount would be ₹1,54,50,911, assuming an average PPF interest rate of 7.10% per annum over the entire period.

How to use this PPF maturity amount?

After continuing with one's PPF account for 30 years, the investor would turn 60and retire from their regular job. In that case, one's PPF maturity amount can be used for a regular income as well.

On how to generate a regular income from one's PPF maturity amount, Pankaj Mathpal, MD & CEO at Optima Money Managers, said, “The PPF maturity amount can be used in SWP, which gives up to 7% annual return in the long-term. Assuming a life expectancy of 80, a retired person would need a regular income for the next 20 years. So, one can invest the PPF maturity amount in SWP for 20 years and generate a monthly regular income for oneself.”

SWP calculator

Assuming a 7% annual return on one's SWP over a 20-year tenor, if a PPF account holder invests their entire PPF maturity amount of ₹1,54,50,911, accumulated over the last 30 years, they would receive a monthly income of ₹1 lakh for the next 20 years. Interestingly, the investor would still have ₹1,00,05,655, or ₹1 crore, in their SWP portfolio after 20 years of ₹1 lakh withdrawals.

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