Investment in PPF Account

POSTED BY Vigneshwari ON November 7, 2011 5:46 pm COMMENTS (5)

I’m at age of 25 and earning around 5L per annum. I’m planning to retire at age of 50.
Is it good to invest in PPF account around 50k every year whereas it will benefit me for tax savings as well as for future savings.
My normal PF contribution is around 25k every year. Life Insurance is around 15k every year. In MF it is around 12k every year.
Next year planning to buy a house by taking home loan.
What are the good options to invest for the retirement?

5 replies on this article “Investment in PPF Account”

  1. Vigneshwari – You have not mentioned about the sum assured for yourself by paying 15k for life insurance (I am assuming this is LIC). If this is an endowment plan and you have contributed for 3 years already make it a paid up policy [Talk to you agent/visit LIC website for details]. Take a term insurance plan about 8-10 times your annual income. This will cover your insurance needs. The money saved from insurance payments, let me assume, Rs. 13000, can be moved to MFs. So your monthly MF investment will be 25000.

    I assume you contribute 25k in EPF today and want to contribute 50k more in PPF. If your employer (and salary structure) supports it you can also contribute the 50k in EPF itself as the return is marginally higher. If you contribute 75000 in EPF every year for the next 25 years it will baloon to 64 Lacs in 25 years. [Try =FV(8.5%,25,-75000,0,1) in Excel].

    Assuming a 13% CAGR over 25 years the MF corpus could be ~ 44 lacs.

    In current terms your savings will put you at 1.08 crores in 25 crores assuming no disturbance in the saving pattern.

    Do note your salary could increase every year about 6-8%. Thus your contribution over the period will increase substantally. Any bonus received can be parked in short term debt funds and transferred to Euity MF via SIP. This will increase your contribution.

    Theoretically =FV(15%,25,-75000,0,1), if you can contribute an average of 75000 every year in MF with CAGR = 15% you will end up with 1.83 crores. This when added to the PF corpus will put you at 2.5 Crores.

    As Ashal said if you put off retirement till 60 years it may be easier to bridge the gap.

    Again hone your skills at work so you can climb the corporate ladder faster==> Higher contribution to retirement fund earlier so a better corpus sooner.

    Note: You have not mentioned any other event from now thru retirement. Marriage, Kids, Vehicle, Home purchase etc.. I have left out Health Insurance from this calculation which is needed these days.

  2. ashal jauhari says:

    Dear Vigneshwari. Now you have the target amount in picture. 2.5 Crore Rs. in next 25Y. For 50K invested each year in your PPF @ 8% rate of interest in next 25Y, the maturity amount ‘ll be 39.5L Rs. That’s a short fall of some 2.41 Crore Rs.

    If you opt to retire @ age 55 – The PPF corpus ‘ll be 61.2L Rs. short fall – 1.89 Crore
    If you opt to retire @ age 60 – The PPF corpus ‘ll be 93L Rs. short fall – 1.57 Crore

    Think about your retirement age now & also the fact from where ‘ll you fill that short fall.

    There is more to it. I do not know how you come to the figure of 2.5 Crore but it seems inadequate to me for your retirement.

    By the way one retirement calculator is already available here –

    https://www.jagoinvestor.com/calculators/html/Retirement-Calculator.html

    Thanks

    Ashal

  3. ashal jauhari says:

    Dear Vigneshawari, in case of retirement – first of all please do not think of retirement at age 50 as of now. First calculate what corpus you may require at the time of retirement to live comfortably with your family (mainly spouse).

    Due to continuous advancement in medical field, the life expectancy is going higher & higher. So in all probability you may think at least age 85 for yourself. That means some 35Y you ‘ll live on the corpus created till age 50. Or you have 25Y from now onwards to create a corpus that you can sustain for next 35Y.

    Keeping Inflation in mind, please try to calculate, what ‘ll be the cost of living at your age 60, 65, 70…… 85?

    Please calculate first, then only think where to park your money for your retirement.

    Thanks

    Ashal

    1. Vigneshwari says:

      Where i can find the calculators?

      1. Vigneshwari says:

        The Corpus Fund required for me is 2.5 crores

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