Power of compounding: Here’s how much minimum you need to invest monthly in PPF to make your child a crorepati

The public provident fund (PPF) is a top choice when it comes to long-term financial planning. Launched by the Centre in 1986, it is a reliable, low-risk government backed savings scheme with consistent and guaranteed returns and can be used to meet financial goals such as funding of wedding, children’s education abroad, buying a house, retirement fund or even building wealth.

A PPF account can be easily opened at any post office or bank branch across India by submitting an application form, photo and mandated KYC documents. For minors, the parent / legal guardian can open an account, which must be converted to major status once the primary account holder turns 18 years of age.

Parents can consider the instrument as a wealth builder for their child over the long-term future. Today, we calculate the minimum amount you would need to invest in their PPF per month in order to successfully set them up for “crorepati” status in the long run.

Kaun banega crorepati? Invest at least 1,900/month

Notably, the age at which you begin investing at has a large impact on the total PPF corpus accumulated at time of withdrawal (usually between 50-60 years of age). When investing for your children, beginning early has dual advantage — it gives the corpus a longer time to accumulate interest, thus making maximum benefit of compounding interest; and it allows you to significantly reduce the minimum monthly investment required to reach your target.

For example, if you begin investment from the year your child is born, with long-term view of staying invested for the next 50 years, the monthly amount required to reach crorepati status is ₹1,900 per month. PPF is offering interest rate of 7.1% at present, below is how the calculation works out for every 5-year delay:

• If you / your child starts their investment at age 25: Minimum ₹12,500 per month deposited for 25 years is investment of ₹37.50 lakh and earns interest of more than ₹65.58 lakh, for total maturity payout of over ₹1.03 crore at age 50.

Power of compounding: Set your child up for success

As seen with the above calculations, delaying investment by just a few years can have significant impact on how much you will need to invest in order to generate the same target corpus. Notably, investing after age 25 would require at least ₹18,000 per month and more with each year’s delay, to reach crorepati status.

And while reaching the “crorepati” could be achieved by gradually increasing your investment amount, time is the biggest factor when it comes to capturing the full benefit of compounding. Further, investing larger amounts monthly in PPF also may not be feasible or tax beneficial for most salaried individuals.

Thus, to set your children up for success, a key factor is to start early and remain invested for extended period in order to make the most of your investment.

Disclaimer: This story is for educational purposes only. We advise investors to check with certified experts before making any investment decisions.