PPF is considered a decent investment avenue. However, you should be mindful of the timing of investments in PPF. Read further to understand details
If you are planning to invest in Public Provident Fund (PPF) in the financial year to save tax, it's advisable to do it before fifth of any month. The reason being- if you deposit money early in the month you would get the advantage of interest added on the contribution before fifth of the month. Additionally, you can invest a lump sum on or before April 5 of a year in order to get the interest for the whole year.
The answer is that the interest rate offered on PPF accounts — currently 7.1 percent — is calculated on the minimum balance in the account between the fifth day of the month and the last day of the month.
The interest on the amount deposited is calculated every month in PPF, but the interest is credited into the account at the end of the financial year, that is, on March 31 of every year. The interest becomes payable for that month if the deposit is made before the fifth of that month.
So, you can get the maximum amount of interest on interest if the amount is deposited before the fifth. If you di it after the fifth day of the month, you may lose out on substantial interest income for that particular month.
Let’s assume your PPF account had a balance of Rs 1 lakh on April 5, 2022, and you made an additional deposit of Rs 1.5 lakh on April 6, 2022, then as per rules, the interest would have been accrued on the minimum balance in the account between April 5 and April 30, 2022, which in this case would have been Rs 1 lakh.
This means you would have lost out on the interest of Rs 1.5 lakh for April 2022. Now, if the deposit was made on or before April 5, 2022, the interest would have accrued on the entire amount, which is Rs 2.5 lakh.
You should be mindful of the timing of PPF investments to maximise returns. Make it a rule to invest on or 5th of every month.
It should be remembered that although the amount of interest foregone due to delayed investment appears small, the interest on the same amount, if compounded over a long period, could make a significant difference to your overall return.
ALSO READ | 5 ways to save tax without making any investment
First Published: Feb 27, 2023 2:38 PM IST
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