What is a PPF Calculator - Know The Use and Benefits of the Tool

A Public Provident Fund is a popular tool to mobilize savings and build a corpus for life post-retirement. It is a long-term savings plus tax savings investment instrument that allows individuals to build a reliable corpus over time as it offers returns on deposited amounts and extends tax-free returns on maturity. This makes PPF a go-to instrument for those planning their retirement. However, to ensure the plan aligns with one's financial goals and can help build a corpus, one can rely on tools like PPF calculators.

Typically, an online PPF calculator allows individuals to determine the estimated returns on a specific deposit amount and how the same would grow over a fixed tenure. This helps understand whether the returns would be enough to support life after retirement or not and helps plan the same accordingly. While the tool is effective in estimating returns over a tenure, several factors tend to influence the maturity amount. This is why it is recommended to check the key features and benefits of an online PPF calculator to use the tool properly for effective financial planning.

A Brief on PPF Calculator

PPF calculator is an investment tool that helps compute the long-term potential returns and estimate the growth of one’s investment. It uses variables such as interest rate, contribution amount, and tenure to ascertain the maturity amount and interest the user is likely to earn over a period.

This feature allows us to determine the suitable deposit amount to invest in PPF to avail of desired returns and build a reliable corpus for the future. For instance, figuring out which amount would help build the desired corpus can help individuals understand whether they can actually afford to deposit the same without straining their budget.

Which Formula is Used for Calculating the PPF Maturity Amount?

This calculator uses a simple formula to compute the maturity amount. It is the same as the one used for computing annuity returns.

The financial tool is designed to help users calculate investment value based on the chosen annual contribution, prevailing interest rate, and tenure of investment.

It uses this formula that computes the maturity value accurately -

M = P [ ( { (1 + i) ^ n } - 1 ) / i ]

In this formula -

M = Maturity amount

P = Annual contributions

i = Interest rate

n = Number of investment year

The portion following ‘P’ in this formula happens to be the annuity factor. When the annuity factor is multiplied by PPF’s annual contribution it can help determine the maturity value of the investment.

Example of PPF Maturity Amount Calculation

Let's take a look at an example below to understand how the PPF maturity amount is calculated.

Suppose Rajeev makes an annual contribution of say Rs. 100000 for 15 years which accrues an interest of 7.1%.

Taking the PPF formula into account we find -

M = P [ ( { (1 + i) ^ n } - 1 ) / i ]

M= Rs 1,00,000 [({(1+0.071)^15}-1)/i]

= Rs 27,12,139

In other words, Rajeev will receive approximately Rs. 2712139 from his PPF account on maturity.

Notably, the formula is complex and involves several steps. This increases the risk of calculation errors when computing manually, which is also a lengthy process.

However, using an online PPF calculator can help save time and provide users with valuable insights within a few seconds. Also, by eliminating the manual process the tool limits the calculation error and helps avail of accurate results. This further helps plan finances effectively.

How to Use an Online PPF Calculator?

PPF calculator has a user-friendly interface that facilitates easy navigation and simplifies its use. By following these easy steps individuals can easily use the online tool to compute returns -

Step 1 - Google search for an online PPF calculator and select a reliable option. Visit the webpage and click on the tool.

Step 2 - Select the desired investment frequency. Note that your selected frequency will impact your maturity value. Typically, salaried individuals are recommended to pick monthly investment frequency to ensure easy payment

Step 3 - Enter the desired PPF investment amount that you want to park into the PPF account. Based on one's payment capacity, individuals can select any investment amount. However, it is recommended to invest not more than Rs. 1.5 lakh in a year for tax rebate purposes.

Step 4 - Select suitable investment duration, i.e. the number of years you want to park money into a PPF account. Typically, individuals are required to invest for 15 years but they have the option to extend their tenure in batches of 5 years after the 15th year. Based on the chosen tenure, individuals can estimate the returns.

After all these details are entered in the designated fields, the online tool will display the information instantly.

Why Use an Online PPF Calculator?

There are plenty of benefits of using an online PPF calculator. Some of the most popular benefits include -

• Helps plan investments

The tool allows users to understand how their PPF investment would grow over time. It helps understand which is the appropriate contribution to meet specific financial goals or build a certain corpus.

• Facilitates comparisons

The tool can be used for free and allows readjustments. This helps individuals adjust their variables until they come across their desired combination. The outcome also helps them compare the returns with other financial instruments or life insurance quotes, enabling them to understand which one suits them the best.

These features facilitate financial planning and allow users to stay ahead of their finances. To make the most of this investment plan, it is advised to deposit contributions before the 5th of every month to receive interest for that month. Typically, interest is computed on the lowest balance between the last day of every month and the close of the 5th day. This will facilitate wealth accumulation. On the other hand, any contribution after the 5th will not earn an interest, resulting in a loss.

That said, a PPF calculator is a reliable financial tool that can help plan investments better and safeguard one's financial future by facilitating proper planning.