How long does it take to double your investment through PPF?

Saving taxes is one of the key components of smart investing. Your portfolio should have good tax saving opportunities along with other may be riskier assets.

PPF is a retirement oriented government scheme and one of the best tax saving tools available to investors. The interest rate earned on PPF is pre-fixed and determined by the government. Therefore, PPF account returns are not linked to any market or economic fluctuations.

It is one of the safest forms of investment as it has a guarantee from the government and gives a guaranteed return. This guarantee is called a sovereign guarantee. This means that there is the government’s assurance of the principal as well as the amount of interest based on a fixed percentage.

It was introduced by the National Savings Organization in 1968 and currently offers an interest rate of 7.1 percent to its investors. However, this rate is revised by the government every quarter.

PPF has a lock-in period of 15 years which is also one of the main disadvantages of PPF. However, partial withdrawals are allowed after 7 years, while after 5 years you can close the account in case of emergency.

Its interest rate is higher compared to other saving instruments like fixed deposits, national savings schemes etc. Not only is it a safe form of investment, it also offers decent returns due to the power of compounding over the long term.

PPF investors are entitled to tax benefits up to 1.5 lakh under Section 80C of the Income Tax Act, 1961. Interest earned on PPF is also completely tax-free.

Suppose you have invested 1.5 lakh in PPF, how long will it take to double your investment. Experts use the Rule of 72 to determine this.

What is the Rule of 72?

The Rule of 72 is an easy way to determine how long it will take for an investment to double. However, to apply this method, the investor must use a fixed rate of return. Also, it is possible to calculate only lump sum and not SIP.

So in this rule you divide 72 by the rate of return provided by the instrument. Given a fixed rate of return, dividing 72 by that rate can give investors a rough estimate of how many years it will take to double their initial investment.

For PPF, the current rate of return is 7.1%.

Taking this into account, 72/7.1 = 10.14.

So for every lump sum deposited in PPF account once, and if the rate of return remains at 7.1%, then it will take approximately 10.14 years to double your investment.

It should be noted that this only works for schemes involving the power of compounding, not simple interest. Also, it will not be accurate for investment vehicles whose rate of return fluctuates like equity mutual funds or stocks.

Similarly, for any instrument with an interest rate of 10 percent, it will take 7.2 years (72/10) to double the investment.

More than calculating the years it will take, this rule can also be used to determine which financial instrument you can use to meet your financial goals.

Let’s say you need to double your investment in 5 years. So, using this rule of thumb, you should invest in an instrument that gives you a consistent rate of return between 14-15 percent over 5 years. Such an investment will most likely double your money in your given time period.

72/x = 5

x = 72/5 = 14.4

Although this rule can be beneficial for investors, you should not follow it blindly. It is important to properly research and review the past performance of investment vehicles before investing in one. PPF has been one of the most popular and secure investment instruments since a long time. Although it will take more time for your money to double in a PPF account, your money will remain safe without any associated risks.

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