The PPF is one of the best indicators of household savings trends. It is also the most robust long-term savings instrument in the economy with a 15-year tenure; its ease of liquidity, unlike term insurance plans, makes it a favorite with the middle class.

However it isn’t only mutual funds and non-banking financial companies that are facing redemption pressure. The government-run Public Provident Fund (PPF)—the single-largest fixed-income scheme in the country—has also suddenly registered a spurt in withdrawals. PPF deposits have shrunk by over Rs 6,700 crore in September alone. Contrast this with the deposit inflow of Rs 5,072.39 crore for the first five months of this fiscal.

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photo by orangeacid

Investment experts keep advising us to “invest for the long term,” mainly so that we may benefit from the power of compounding.

Take an individual who decides to invest Rs. 50,000 for 20 years. Assume that he earns a constant return of 8% per year. In the first five years, the Rs. 50,000 invested grows to Rs. 73,466. (see table) This means, he gains Rs. 23,466 in absolute terms in the first five years. [Read more]

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