Small saving schemes, which offer a higher interest rate than bank fixed deposits, can make investors crorepati over the long run as they have an upper limit on the maximum investment, experts say.

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For example, Public Provident Fund (PPF) has a maximum contribution limit of Rs 1.5 lakh per financial year. Moreover, small savings schemes have a sovereign guarantee for safety and also tax benefits.

These benefits can help investors in earning enough over a certain span of time.

Currently, PPF offers an interest rate of 7.1 percent for the July to September 2021 quarter which is higher than bank FD rates. It also qualifies for EEE tax treatment, where the initial investment qualifies for the Section 80C tax deduction up to Rs 1.5 lakh per financial year. Moreover, the interest and the amount withdrawn at maturity are tax-free.

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According to Archit Gupta, founder and CEO at Clear, investing in small saving schemes such as PPF at the maximum permissible limit when an individual starts working can help him/her in becoming a crorepati at retirement.

"PPF has a 15-year tenure, with an extension in blocks of five years any number of times. The Clear PPF calculator shows an individual can get over a crore if he/she invests a fixed monthly amount of Rs 10,000 for a maturity duration of 30 years. One will have to assume the current PPF interest rate of 7.1 percent across the entire investment period. Investing in PPF helps conservative investors become crorepati in a risk-free manner in the long run," Gupta said.

According to another calculation provided by Groww, to achieve this goal, investors need to be patient and regularly invest for 25 years at the current interest rate of 7.1 percent, utilising the maximum limits of PPF investments allowed in one financial year.

As per calculations, if someone starts investing Rs 12,500 per month (the maximum monthly investment that can be done in PPF) and continues the PPF account till 15 years, he/she may earn over Rs 43 lakh at the time of maturity (in accordance with the current 7.1 percent rate of interest).

Now, the same account can be extended within one year of maturity for a further five years and so on to earn more benefits. After investing Rs 1.5 lakh per year for 20 years ( first extension) at 7.1 percent, the PPF account balance will be about Rs 73 lakh.

Now, in order to get Rs 1 crore, the investor needs to extend the account for a further five years (second extension). After investing Rs 1.5 lakh per year for 25 years at 7.1 percent, the PPF account balance will be Rs 1,16,60,769 (which is more than 1 crore).

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On the other hand, investors with higher risk tolerance can invest in equity mutual funds for becoming crorepati.

"It helps individuals to become a crorepati in a shorter time as compared to small saving schemes as these investments may offer a higher return as compared to small savings schemes but at a higher risk. It may offer inflation-beating returns over the long run along with tax benefits. Investors should opt for the systematic investment plan (SIP) route where they can invest small amounts regularly over time," Gupta of Clear said.

Disclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.

First Published:Jul 7, 2021 5:40 PM IST