Friday, June 26, 2009

Want to be rich? - Part 17

The most interesting instrument of growing money with the least effort - at least in India - is the Public Provident Fund (PPF) route. Other countries will have its equivalent.

This is how it works. You open a PPF in a bank (I have one in State Bank of India). You can also open a PPF account in the Post Office. It is a 15 year scheme. You need to deposit at least Rs. 500 every year. The maximum you can deposit every year is Rs. 70,000. The scheme has other facilities like loan and partial withdrawal. I would advise against it. Keep the money in the PPF scheme for 15 years.

If you deposit Rs. 5000 a month (Rs. 60,000 a year) for 15 years, then at the end of the 15th year you should have - assuming 8% interest - about Rs. 17,59,457 in your account (i.e., 1.95 times the amount you actually save). In addition, you get a tax exemption on the money you save. Assuming you are in the 33% tax bracket, if you take the tax saving into account, the effective increase in your money is 2.91 times)

Some more details are available here.

Doesn't actually make you a multi-millionaire (what do you expect from a no-effort scheme?), now, does it? But every bit helps.

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