It is said that money saved is money earned. Savings are an integral part of the wealth management strategy of every individual. There are plenty of options in the market for saving accounts to choose from. However, it is important to look for an option that is risk-free and guarantees substantial returns. Public Provident Funds, or PPF Accounts, as they are called commonly are one such option that is intended to invest the capital.
An individual who has just started with their professional journey or a parent who wants to keep provisions for the future must consider choosing PPF Accounts as these are very straight forward to operate. However, calculating the rates of interest and returns turns out a little complex for certain individuals. To alleviate this problem, various agencies have devised an online PPF calculator.
What is a PPF
PPFs were introduced with the aim of mobilizing small savings into investments with substantial returns along with saving tax. It also helps in building a corpus for retirement. These funds are backed by the government and the risk involved in this investment is very low. Also, these public provident funds fall under the EEE category thus making the amount invested, interest earned, and the maturity amount tax-free. Public Provident Funds have a minimum tenure of 15 years. However, investors can withdraw the amount once a year after completing 6 years with their investment. This tenure can be extended in blocks of 5 years indefinitely. These funds also have investment limits of a minimum of Rs. 500 and maximum Rs. 150000 and the investment can be made in a maximum of 12 installments or in a lump sum. However, these funds require you to deposit at least once a year for 15 years.
The process of opening a PPF Account is simple as it can be opened with a post office, any nationalized bank in India, or certain private banks that are authorized for PPF Accounts.
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How can a PPF calculator be helpful?
A PPF calculator is a tool that is designed to help its users with numerous public provident fund account-related issues. This tool tracks the growth of the user’s capital. There are certain terms that should be abided by while using the PPF calculator to ascertain the maturity amount post a certain time point. It must be noted that the rate of interest on the PPF saving account changes on a monthly basis. Although the process of checking the current interest rates is easy today with the availability of all the information online, users find PPF calculators more convenient to find out the changes in the interest rates.
What is the formula used for calculating the PPF?
The formula used to calculate the expected interest and the maturity amount is:
A = P [({(1+i) ^n}-1)/i]
Here,
‘A’ is the maturity value
‘P’ is the principal amount invested
‘I’ is the expected interest rate of return the scheme
‘N’ is the duration for which is the amount is invested
This means that higher ‘N’ leads to higher returns.
The interest in a PPF account is calculated on the particular balance between the fifth and the end of the month. Thus, if an investor deposits some amount before the 5th of every month, he gets the interest on the deposit amount, else he gets the interest on the past balance. This also means that for an investor who deposits an amount every month, depositing it before the 5th and after the 5th makes a marginal difference in the interest amount. For investors who deposit in a lump sum, it is advisable to invest before the 5th of April.
How to use a PPF calculator
The PPF calculator is a very useful tool for everyone who is investing or is preparing to start investing in PPF. The tool is user-friendly and provides accurate information to its users if used properly. It is easy to use as the users just need to enter a few values in the columns. The details that the user needs to fill in a PPF calculator are the tenure of the deposit, the total amount invested, the interest that is earned, and the amount invested yearly or monthly. Once these details are filled in, the calculator gives the maturity amount as its output within a few seconds. Note that if an individual deposits the amount on April, 1st, the interest gets calculated depending on the financial year, and inflation in the economy may affect the interest.
Advantages of a PPF calculator:
PPF calculator provides great help to graduates who have just commenced with their professional careers and other individuals who find the process of interest calculation quite difficult. Here are a few benefits of this highly useful calculator:
- It gives a good estimate of how the interest that can be earned by investing a certain amount
- It can help users save tax by helping them in their investments planning
- It is helpful in deciding the maturity period of the investments
- It provides an estimate of the total investment in a year
