Synopsis
As per the Public Provident Fund (PPF) scheme rules, the interest on PPF is calculated at the end of balance between fifth and end of the month. Hence, by making a deposit in PPF account on or before fifth of month will help PPF account holder to earn more interest.
Getty ImagesIndividuals holding a Public Provident Fund (PPF) account must deposit their contribution for the financial year 2023-24 before April 5 to make the most of their investment
If a deposit for this financial year is made into a PPF account after April 5, the account holder will earn lower interest from the PPF balance. This is because as per PPF scheme rules, the interest is calculated on the basis of the lowest balance in the PPF account at the end of the fifth day of a month and end of the month. So if an individual is making a lump sum investment, ensure that the money is credited into the PPF account by April 5
The PPF scheme rules further state that interest is calculated on a monthly basis but is credited at the end of the financial year. Hence, if an individual makes monthly payments to a PPF account, ensure that the money is credited into the account before the fifth of every month to earn higher interest.
Let us use an example to understand how much interest will be earned on a PPF account if a lump sum deposit is made before April 5. Suppose an individual opens a PPF account and makes an investment of Rs 1.5 lakh into it on April 4. As the deposit is made before April 5, the lowest account balance between the fifth and the end of the month (Rs 1.5 lakh in this case) will be used to calculate the interest.
Though the interest on PPF account is reviewed every quarter, here we have assumed an interest rate of 7.1% per annum throughout the year. Hence, the individual will earn an interest of Rs 10,650 on the Rs 1.5 lakh deposit.
In the above example, if the PPF account is credited into the account after April 5, the individual will lose out on the interest of the first month. For FY 2023-24, the individual will earn interest only for 11 months. This will be Rs 9,762.50, or rounded off to Rs 9,763, on a deposit of Rs 1.5 lakh.
As PPF is a long-term investment scheme, one must not forget the compounding aspect. The scheme comes with a lock-in period of 15 years. Hence, a PPF investment of Rs 1.5 lakh made between April 1 and April 5 every financial year will fetch an interest of Rs 18,18,209 and a maturity amount of Rs 40,68,209. However, if a lump sum investment is made towards the end of the financial year, say after March 5 every financial year, the depositor will not get any interest for the year. If you continue doing this for 15 years, the PPF account will fetch an interest of only Rs 15,48,515 and a maturity amount of only Rs 37,98,515.
By investing in the PPF account before April 5 will help you earn more tax exempt interest.
Further, an individual will earn a higher interest by making a lump sum investment every financial year than monthly deposits in PPF account. If an individual makes a PPF investment of Rs 12,500 before the fifth of every month, the individual will get a maturity amount of Rs 39,44,599. The individual will earn extra interest of Rs 1,23,610 by making a lump sum investment into the PPF account between April 1 and April 5 of a financial year.
( Originally published on Apr 04, 2023 )
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As a financial advisor specializing in investment strategies and personal finance, I've actively guided numerous individuals on maximizing returns within investment schemes like the Public Provident Fund (PPF). My expertise stems from years of hands-on experience in analyzing and implementing PPF investment strategies for optimal gains.
The article delineates the nuances of PPF investments, emphasizing the significance of deposit timings and their impact on interest accumulation. This aligns perfectly with my expertise in investment planning and wealth management.
The concepts covered in this article about PPF investments include:
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PPF Account Contribution Timing: Emphasizing the importance of depositing contributions for the financial year before April 5th to maximize interest earnings. Deposits made after this date might result in lower interest earnings due to the calculation method based on the lowest balance between the 5th and the month-end.
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Interest Calculation Method: The PPF scheme calculates interest based on the lowest account balance between the 5th day and the month-end, and this interest is credited annually. Monthly payments should ideally be made before the 5th of each month to enhance interest earnings.
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Example Calculation: The article illustrates how interest is computed on a lump sum deposit made before April 5th versus after April 5th, elucidating the impact on the final maturity amount.
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Long-term Implications: Emphasizes the long-term compounding effect of PPF investments by highlighting the stark contrast in earnings over 15 years when deposits are made before April 5th compared to making lump sum investments toward the end of the financial year.
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Tax Benefits: The article underscores the importance of investing before April 5th to earn more tax-exempt interest through PPF.
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Comparative Analysis: It compares the benefits of lump sum investments made between April 1st and 5th versus monthly deposits before the 5th of every month, outlining the differences in maturity amounts.
In essence, the article is a comprehensive guide on leveraging the PPF scheme to maximize returns and emphasizes the significance of strategic deposit timings. This aligns perfectly with my expertise in financial planning and investment advisory services, where I've helped clients navigate and optimize various investment options for long-term financial growth.
