PPF
Should you open a Public Provident Fund (PPF) account in your 20s?
Starting a PPF in your 20s builds wealth, saves tax and ensures a secure future. Learn why early action leads to big rewards in your financial journey.
Key takeaways
- Opening a PPF account in your 20s is like giving your future a solid head start.
- With the tax-free interest, guaranteed returns (~7.1%), and the magic of compounding, even small contributions today can grow into sizeable corpus over 15 years.
- PPF is perfect for disciplined, risk-averse young earners.
You are in your 20s – juggling rent, bills, and maybe even saving for that dream vacation. Among these things, retirement may seem like a tension of the future. Though retirement is decades away, you need to think now. The 20s are the best time to start a PPF account and lead a comfortable life in your senior years.
The Public Provident Fund (PPF) is a long-term savings instrument that offers tax benefits. It also guarantees security and competitive returns. PPF was developed not just for the financially savvy but also for anyone wishing to produce wealth gradually and systematically. In this article, we will explore PPF in straightforward terms and help you decide if it is right for you.
What is a PPF account?
A PPF account is a government-backed savings scheme with a 15-year maturity period. It is essentially a long-term commitment between you and your future financial security. The PPF interest rate is not fixed and is reviewed by the government every quarter. It is linked to the yield of government securities (G-secs). The current interest rate is 7.1%.
Features & benefits
- Tax-free interest
- Tax benefits under Section 80C of the Income Tax Act (For those choosing the old tax regime)
- Low-risk investment (backed by the Indian Government)
- Minimum annual investment of ₹500 and maximum of ₹1.5 lakh
PPF is particularly attractive for young earners because it combines safety, tax benefits, and reasonable returns – a trifecta seldom found in the other investment options.
Why start PPF in your 20s?
The power of compounding
When you start investing early, time becomes your greatest ally. A monthly contribution of ₹5,000 started at age 25 can grow to approximately ₹15 lakh by the time you're 40, thanks to compound interest. The same investment started at 35 would yield significantly less.
Disciplined savings
PPF operates on the “pay yourself first” principle with its long-term structure. This enforced discipline can be quite beneficial for young professionals who might otherwise struggle with consistent saving habits.
Tax efficiency
As a young professional just entering the tax bracket, maximising your Section 80C deductions makes financial sense. PPF contributions (up to ₹1.5 lakh annually) can reduce your taxable income while building your wealth.
Financial safety net
Unlike more volatile investments, PPF offers stability – creating a reliable cushion for future goals like homeownership, higher education, or even early retirement.
How much should you invest?
| Income level | Suggested monthly PPF investment | Annual contribution | Approximate corpus after 15 years (at 7.1%) |
|---|---|---|---|
| Entry-level | ₹2,000 - ₹3,000 | ₹24,000 - ₹36,000 | ₹7.2 lakh - ₹10.8 lakh |
| Mid-level | ₹3,000 - ₹8,000 | ₹36,000 - ₹96,000 | ₹10.8 lakh - ₹28.8 lakh |
| Senior | ₹8,000 - ₹12,500 | ₹96,000 - ₹1.5 lakh | ₹28.8 lakh - ₹45 lakh |
Remember, there is no pressure to maximise your contribution immediately. Starting with even ₹2,000 monthly is perfectly sensible. You can unhurriedly increase your contributions as your income grows.
Loans and partial withdrawals – how do they work?
Loan facility
Between years 3-6 of your PPF account, you may take a loan of up to 25% of your balance from the previous year. This feature provides flexibility during financial emergencies without disrupting your long-term goals.
Partial withdrawals
From the 7th year onwards, you may withdraw up to 50% of the balance at the end of the fourth preceding year. This possibility supports mid-term goals like higher education expenses or wedding costs.
These features add flexibility to what might otherwise seem like a fixed long-term commitment.
Common concerns addressed
- “But what if I need money sooner?” - Pairing your PPF with more liquid investments is a good idea. These could be fixed deposits or short-term mutual funds for immediate needs.
- “Is 15 years too long?” - After maturity, you can extend your account in blocks of 5 years with more flexible withdrawal options.
- “What if interest rates drop?” - PPF historically outperforms inflation and retains its tax advantages even with fluctuations. And that is what makes it a dependable component of your portfolio.
How to open a PPF account?
Opening a PPF account is simple. Visit any nationalised bank or post office with your ID and address proof. Then, fill out the application form and make your first deposit (minimum ₹500).
Several banks present online account opening opportunities, too, for added convenience.
Conclusion
The PPF account is ideal for young earners seeking a safe, tax-efficient, long-term savings option. It is particularly beneficial for those who dip into savings, as the lock-in period enforces discipline. However, if you anticipate requiring notable liquidity in less than five years, you might want to balance your PPF investment with more accessible choices like recurring deposits or mutual funds.
Disclaimer: This article is intended solely for informational purposes. The views expressed in this article are personal. Axis Bank and/or the author shall not be liable for any direct or indirect loss or liability incurred by the reader arising from reliance on the content herein. Readers are advised to consult a qualified financial advisor before making any financial decisions. Axis Bank does not endorse or guarantee the accuracy of any third-party content or links included in this article.
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