PPF (or any fixed income product) fails as a retirement funding
option--SEQUEL
“Kitna Milega”?
This is the first question
that an investor asks at the time of making an investment. His “friendly neighborhood” advisor says
“pataa nahin”.
It is highly likely that the
investor declines to make the promised investment and instead goes for PPF (likely advised by his CA)—which offers
8.1 %( w.e.f. 01/04/2016).
Is PPF that good?? Does it
score over Equity Mutual funds?
Let’s see.
We decided to do a reality
check as to see whether PPF does indeed scores over ELSS.
We requested one of our
clients who had been investing (read saving) in PPF for last 15 odd years to
provide us with a copy of his PPF passbook. We decided to run the check against
HDFC Tax Saver (one of the few funds which has a twenty year record (date of
inception—31/03/1996).
The table that emerged is as
under:-
|
Date
|
Amount
|
Interest
|
Withdrawal
|
Balance
|
NAV
|
Units
|
Balance
|
Value
|
|
04/03/1998
|
30000
|
|
|
30000
|
11.47
|
2616
|
2616
|
30000
|
|
04/03/1999
|
20000
|
|
|
|
18.77
|
1066
|
3681
|
69093
|
|
05/03/1999
|
20000
|
|
|
|
18.77
|
1066
|
4747
|
89093
|
|
31/03/1999
|
|
4336
|
|
|
|
|
|
|
|
06/03/2000
|
60000
|
|
|
|
46.60
|
1288
|
6034
|
281191
|
|
31/03/2000
|
|
9312
|
|
143648
|
|
|
|
|
|
23/03/2001
|
60000
|
|
|
|
15.86
|
3783
|
9817
|
155701
|
|
31/03/2001
|
|
15622
|
|
219270
|
|
|
|
|
|
09/01/2002
|
60000
|
|
|
279270
|
17.41
|
3446
|
13264
|
230918
|
|
31/03/2002
|
|
21664
|
|
|
|
|
|
|
|
04/03/2003
|
60000
|
|
|
360934
|
19.49
|
3079
|
16342
|
318506
|
|
31/03/2003
|
|
27233
|
|
388168
|
|
|
|
|
|
02/03/2004
|
70000
|
|
|
|
41.43
|
1690
|
18032
|
747050
|
|
31/03/2004
|
|
31520
|
|
489688
|
|
|
|
|
|
04/03/2005
|
70000
|
|
|
|
70.68
|
990
|
19022
|
1344476
|
|
31/03/2005
|
|
39642
|
|
599329
|
|
|
|
|
|
10/02/2006
|
70000
|
|
|
|
117.18
|
598
|
19619
|
2296999
|
|
31/03/2006
|
|
48413
|
|
717742
|
|
|
|
|
|
01/03/2007
|
|
|
140000
|
577742
|
135.89
|
(1030)
|
18.589
|
2526077
|
|
20/03/2007
|
70000
|
|
|
|
129.22
|
542
|
19131
|
2472068
|
|
31/03/2007
|
56486
|
|
|
704228
|
133.88
|
422
|
19553
|
2617724
|
|
07/03/2008
|
40000
|
|
|
|
157.13
|
255
|
19807
|
3112325
|
|
31/03/2008
|
|
56338
|
|
800566
|
|
|
|
|
|
27/02/2009
|
70000
|
|
|
|
89.449
|
783
|
20590
|
1841746
|
|
31/03/2009
|
|
64512
|
|
935078
|
|
|
|
|
|
13/02/2010
|
70000
|
|
|
|
190.63
|
367
|
20967
|
3996052
|
|
31/03/2010
|
|
75273
|
|
1080351
|
|
|
|
|
|
11/08/2010
|
70000
|
|
|
|
227.54
|
308
|
21265
|
4838578
|
|
31/03/2011
|
|
89696
|
|
1240046
|
|
|
|
|
|
02/04/2011
|
70000
|
|
|
|
232.77
|
301
|
21565
|
5019792
|
|
31/03/2012
|
|
107424
|
|
1417470
|
|
|
|
|
|
12/04/2012
|
100000
|
|
|
|
220.89
|
453
|
22018
|
4803593
|
|
31/03/2013
|
|
132804
|
|
1650272
|
|
|
|
|
|
02/07/2013
|
100000
|
|
|
|
222.65
|
449
|
22467
|
5002346
|
|
31/03/2014
|
|
150099
|
|
1900373
|
|
|
|
|
|
09/04/2014
|
100000
|
|
|
2000373
|
283.74
|
352
|
22820
|
6474874
|
|
|
|
|
|
|
|
|
|
|
|
Summary
|
Total invested
|
|
Withdrawn
|
PPF Balance
|
Current NAV
|
|
|
Current Value
|
|
26/08/2016
|
1266486
|
|
140000
|
2000373
|
408.189
|
|
|
9314873
|
Inference from the above
table:-
- The same Rs. 12.66 lacs invested in ELSS grew 8 times (Rs.93.15 lacs) more than what the PPF corpus grew over the same 16 year period.
- In his quest of not losing money, the investor parked his savings in PPF, thereby losing whopping Rs. 80 lacs of the incremental gains that could have been his had he invested in ELSS fund.
- At no point in the last 10 years, when the market has witnessed big fluctuations, has the ELSS corpus been less than the PF corpus.
- Even in March 2009, when the Sensex was at its lowest at roughly 9000 levels, the ELSS corpus was more than twice the value of the PPF corpus.
- Even now, if the market were again to drop 50% like it did in 2008-2009(which no one believes it will), the ELSS corpus would still be higher than the PPF corpus, even after a 50% drop.
- Apart from the returns aspect, there is the liquidity aspect. ELSS has a lock in of 3 years while PPF has a lock in of 15 years (although one can take a loan against the PPF balance—subject to term & conditions).
- Tax benefit is same for the ELSS funds & PPF.
- The only advantage that PPF has is that it cannot be attached by Income Tax authorities.
Read Part 1 of the article here:- PPF Fails as a Retirement funding product Part 1
