Why I maximized PPF investment only after ten years

Published: March 1, 2021 at 11:17 am

In this article, I explain why I did not invest the maximum amount eligible into PPF for ten years. The start of another month, and it is time to open my trusted investment tracker Excel. I have been using this for the last ten years to track my investments.

This sheet is available here:  How tracking investments instead of expenses changed my life!. More importantly, I use it to track the increase in investments for different goals: Why increasing investments each year is crucial for financial freedom.

We have four PPF accounts in the family: mine, my wife’s, my son’s (in my name) and my mothers (opened only after she retired: it doubles as a tax-saving instrument for her and also for my son’s future).

My account and my wife account are completing 15 years in April 2022. My son’s account and my mother’s account are 10 years old. The maximum investment per year possible was:

  • Before April 2014: one lakh (self + son) + one lakh (wife) + one lakh (mom) = 3 lakh
  • From April 2014: 4.5 lakh (same logic but limit increased to 1.5 lakh)

We have never once invested the maximum amount until now. For some years, there was not enough money to do so. Yes, I feel proud to have resisted the temptation to maximise PPF investments when we could. Resisted the temptation to take refuge in the security offered by PPF and take on market risks because there was ample time to do so.


Benefits of not investing the maximum amount in PPF!

  • No other product afaik offer this benefit or for at least long: You can invest Rs. 500 for the first 14 years and invest Rs. 1.5 lakh (the max amount) in the last year or even the last day the account is active. You might think, what is the use, you lose interest. No, we use the flexibility to reduce risk in the portfolio.
  • In the last ten years, I have rebalanced from equity to my son’s PPF (“booked profits”, if you will) thrice. This has helped reduce risk in the portfolio, made me feel satisfied and secure that even if the stock market crashes by 50% and takes years to recover, I still have enough in safe assets to pay for his future expenses. Read more: This useful feature of PPF deserves more attention!
  • Asset allocation the biggest benefit. Talk to investors about asset allocation, and the young earners act like it is not relevant for them. They think they are not investing enough to worry about it. The older earners would tell you their biggest problem is a debt-heavy portfolio. Something like 70-80% in EPF/VPF/PPF that it would take them years to increase equity exposure, and some of them would retire before that!
  • Avoiding the temptation to maximise PPF (or GPF or VPF) and focussing on asset allocation will ensure we do not fall into this debt-heavy situation. Even then, it took me 8-9 years to increase the equity allocation in retirement to close to 60%. It has gone above 60% for the first time in 12 years only in the last few months.
  • I started my son’s portfolio on a clean slate: It was always 60% equity and 40% debt. An increase in equity allocation was rebalanced into PPF, and a decrease in equity allocation left alone (not saying it is right, just what I did).
  • With only about seven years of school left, it is time I reduced the equity allocation from 60%. This is the reason why I have increased investments in PPF and for the first time, invested the maximum amount possible.
  • If I had succumbed to the temptation of “safe returns”,  I would have never been able to reach the goal target (in current prices) in about 8 years of investing almost 11/12 years before the due date. Of course, the amount invested matters but so does where it is invested.

Safe and secured returns are like a mirage on a hot day. So much time could be spent searching for it that we might get lost and never find the road to the right destination. Also see: Are you aware of this risk in guaranteed return products?

Asset allocation (suitable for an individuals requirement and varied in the right manner) + the discipline to stick to it can solve all investing problems. Our problem is that we are always in a hurry to find the “best products” instead of a “suitable process”.

The key to build wealth is process, not products.

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About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations based on money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association, IIST Alumni Association. For speaking engagements, write to pattu [at] freefincal [dot] com
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