Beginner’s Guide To Use PPF Calculator In Current Year-Piramal Finance

A Public Provident Fund is an ideal investment whether you are a responsible parent, a young adult, or a new employee exploring ways to accumulate funds for a safe future. However, it is arduous to calculate the interest and returns on the investment. That is where the PPF calculator comes in as a saviour to make these terrifying calculations easy! But how to use a PPF calculator? This article will walk you through the step-by-step process for using the calculator and provide you with some real insights into how the PPF scheme works. So dive in!

What is a Public Provident Fund?

Public Provident Fund, or PPF, is a lucrative retirement benefits scheme that aims to turn small savings into investments with reasonable interests. The government of India initiated the scheme in 1968 to promote a safe and secure post-retirement life. It is a prime choice for many residents owing to the tax benefits and attractive interest rates it guarantees.

The scheme requires a minimum of Rs. 500 deposit, with the maximum being Rs. 1.50 lakhs to retain the account. As a result, PPF is a good option for building a sizable corpus as it comes with long-term benefits. 

What are the features of the PPF?

The PPF account is accessible to any Indian citizen. Here is an overview of some of the features it accompanies:

• PPF is a stable investment as it is a government-backed scheme.
• It promises an interest rate of 7.1%, compounded annually.
• You can make the investments in a maximum of 12 instalments or a lump sum per your suitability.
• PPF offers a risk-free investment opportunity with high guaranteed returns.
• You can borrow loans from banks against the PPF account.
• An amount of Rs. 1.5 lakhs can benefit from the tax exemptions under Section 80C, Income Tax Act, 1961. 

How does the PPF work?

The PPF account provides income tax deduction under Section 80C for the amount you invest. It implies that the interest you accumulate from your investment is subject to tax exemption. Besides interest, there is no tax levied on the maturity also. PPF accounts have a tenure of 15 years. In essence, you will have a lock-in period of 15 years to acquire funds for the future. However, there are two options you can opt for when the investment matures:

1. Closure of Account

If you wish to end the investment, you can visit the bank branch or post office where you opened your account. Write an application to withdraw the proceeds and close the account. Mention the bank details to simplify the transfer process and keep your original passbook handy. Additionally, attach your identity proof, address proof, and a cancelled check to the rest of the documentation. You can submit them to the bank or post office officials once you have all the required documents.

2. Continue account for the next 5-years

You need to give an intimation in writing on a prescribed form to your bank or post office within a year of maturity if you want to extend the period. You can retain the account operative without making any new contributions. However, you can continue depositing to avail of tax deductions on those deposits. Once you hit the block of five years, you can request another extension of five years, and so on. This way, your account will earn interest until you close it permanently. 

How is PPF calculated?

A PPF calculator presents the future value of your investment based on the current interest rate and the annual contribution you make toward your account. The formula is as follows:

M = P [ ( { (1 + i) ^ n} – 1) / i] 

Where,

• M = Maturity value
• P = Annual Payments
• i = Interest Rate
• n = Number of Years

Let’s take an example to comprehend how it works.

Annual Contributions	Rs. 1 Lakh
Number of Years	15
Interest Rate	7.1%

Using the data given in the table, 

M = 1,00,000 [ ( { (1+7%) ^ 15} – 1) / 7%]

M = Rs. 27,12,139

If there is a change in interest rate, you will have to make the same calculation for different periods. For example, say the rate is 7% for five years, but it elevates to 8% for the next five years. In this case, you can calculate the M with ten years as n and i of 7%. Then add the amount to the M with five years as n and 8% as I. 

How to use an online PPF calculator?

Since the money you deposit in PPF has a lock-in for 15 years, it is preferable to know how it will grow. Manually doing it is undoubtedly one way to estimate the amount, but a minute error can turn your entire calculation wrong. PPF calculator is a digital tool that enables you to calculate returns on the deposits you make in your account. It further facilitates making adequate investment and tax-saving plans. 

Here is the short and easy process that you need to follow to calculate the expected return on your investment:

1. Type in your annual investment or move the slider to get the amount.
2. Enter the tenure or maturity period in the next column.
3. You do not have to worry about finding the prevailing interest rate, as the calculator sets the current rate on default.
4. Once you have furnished all the required details, the calculator will effortlessly compute the amount and show you the desired information.
5. You can view the total amount you invested in the scheme, the interest you accumulated, and the maturity value you will receive. 

Things to keep in mind while using an online PPF calculator

Some things you must keep in mind when using an online PPF calculator are:

• The government sets the interest rate quarterly
• The interest is compounded once yearly
• The compounded interest is determined annually at the end of each fiscal year
• The longer the investment duration, the higher interest you will receive on the value

Conclusion

Earlier, it was undeniably challenging to stay updated with the fluctuating interest rates on PPF. But the introduction of PPF calculators came as nothing less than a boon. It is now significantly simpler for several account holders to keep track of the rates and determine their corpus at any time from any location. It also eliminates the errors that may come from manual calculations and saves time. All you need to do is type in the few required details regarding your investment, and you will be good to go!

Piramal finance will assist you in making the right financial decision that will help you cultivate the maximum benefits. It is an Indian financial services company aiming to provide and simplify retail lending, including personal loans, business loans, housing loans, and other financial products and services to consumers.