What is my return from PPF?

I am happy about the response the previous article on PPF has generated. However a former colleague of mine from SICOM made an observation that I should give an idea about the Internal Rate of Return (IRR) this investment avenue offers, taking into account the tax benefit that it offers. That is an excellent suggestion and I have just worked out the numbers for you.

Assumptions:

1. On every 31st March for 30 years you deposit an amount of Rs.20000 in your PPF account and withdraw it after about 31 years.
2. You withdraw and redeposit an amount of Rs.20000 per year from the 5th year onwards, thereby you get a tax rebate of Rs.6000 per year, without any 'real' outgo.
3. At the end of about 31 years you withdraw the entire maturity of approximately Rs.850000

The IRR for this type cashflow stream works out to a staggering 12%. The maturity is tax free, the interest earned is tax free, and all deposits ('virtual' included), are eligible for tax rebate. Above all, there is ZERO risk. If you get any other avenue matching these parameters, do tell me!

Madhusudan Sohani