There have been some requests for sharing my own PPF experience and I wanted to do so in this post. As I have said earlier, I started my PPF account when I was 29, and wish I had done so earlier. Like many things in my life, I will have to credit my wife for encouraging me to start a PPF account. She already had one when we got married.
One of the first things I did was to maximize the contribution for both me and my wife. At that time it was 60000 Rs which has now increased to 1.5 lacs per year. We also got into the habit of making the contribution in early April of each year. This helped us in our financial discipline and also enabled us to earn the maximum possible interest in the year. At the start it was easy to do this as we were not having many other investment options. As the family grew expenses increased and other investment options created their own space. However, we continued our regular investment in PPF over the years. So much so that when we relocated to Chennai in 1998, we would make our vacation plans for travel to Delhi in April and one of the objectives was to deposit the PPF contribution.
Nowadays, of course, you can deposit the PPF amount online and even have online access to it. This has enabled us to maintain the original PPF account in Noida without going through the process of getting it shifted to Chennai or Hyderabad.
The advantage of having a long term PPF account was demonstrated to us quite powerfully in 2004. My wife’s account matured that year and we got an amount of 11 lacs odd. This helped us significantly to bump up the down payment of our apartment in Chennai. We had to take a loan of 15 lacs but this would have been much more without the PPF amount. This is a real life example of how PPF money can be used, partly or fully to achieve our goals.
My own PPF account completed 15 years in 2009 and I have now extended it twice. Over the years I have always contributed the maximum amount in April of each year. I hope most of you are aware that to get the full interest of the year, you need to do your contribution by the 5th of April. A rough calculation tells me that I will have an amount slightly in excess of 1 crore if I continue to invest for the next 10 years. The reason I want to continue investing in it is this – I see PPF as my main instrument of debt allocation which grows in a compounded manner. I do have more money in FMP but that is more like a passive income stream that I have set up for my financial independence.
What is my plan with the PPF account? Well, I have not thought through it completely but my approach is going to be as below:-
- From now till I retire in about 9 years ( contrary to what many feel I am not retired !!), my shortfall in passive income due to market falls can be met through withdrawal from PPF.
- The same goes for any goals, such as my daughter’s education ( PG ) , that may need use of this money.
- After 10 years too I plan to keep the account active and earn interest out of it. Usage of the money will again be for meeting passive income needs or for any particular goals.
Now, had I started PPF 5 years earlier than I did, the amount available would be almost 1.5 times of what I have today!! That is really the power of compounding and regular investment. It is also the reason I advise everyone to open an account as soon as possible.
We have also started an account for my wife 3 years back when she began having some part time income. The plan remains the same, continue to invest the maximum amount and use it only when needed.
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