PPF Investment Trick: Here's how you can maximise your interest if you invest on this date; understand with examples

PPF is one of the safest investment schemes provided by the government as it offers guaranteed returns. Through this, individuals can accumulate retirement funds. Unlike PPF, there is no need to be a salaried individual to invest in this scheme. The PPF account can be opened in any bank or post office. This is a long-term investment scheme which has 15 years lock-in period. Therefore, it is suitable for retirement purposes.

PPF: A look at the key features

- Government-backed scheme, therefore a safe investment option.
- Provides guaranteed returns.
- Minimum investment required is Rs 500 per year.
- The maximum you can invest is Rs 1.5 lakh per year.
- Can take loan benefits.
- After a specified period, you can do partial withdrawals.
- Once matured, the account can be extended in blocks of five years.

PPF: Key benefits

Compounding
There are compounding interest benefits in PPF investment. This means that investors can earn interest on interest and build wealth over a period of time.

Lock-in
Since there is a 15-year lock-in period, this feature makes PPF a suitable scheme for retirement.

Tax benefits
Under Section 80C of the Income Tax Act, taxpayers can claim tax benefits (under old tax regime only) of up to Rs 1.5 lakh.

Interest rate on PPF
The interest on PPF is reviewed by the government every quarter. Currently, there is a 7.10 per cent annual interest rate on the scheme.

Can you withdraw funds before the lock-in period ends?

After completing five years of investment, investors can withdraw partial funds from their PPF accounts. This is subject to withdrawal conditions.

Who should invest in PPF?

The PPF scheme is suitable for:
Salaried individuals
People planning for retirement
Self-employed people
etc.

What is the trick to maximise interest in PPF?

If you are planning to invest in PPF, you can earn better interest by just following a simple date trick. You just need to keep a date in mind.

So, the rule is simple: If you deposit money in your PPF account on or before the 5th of the month, that deposit amount will be included for calculating interest for that month. But, if you deposit money after the 5th (i.e. on or after the 6th), then that deposit amount will not be included in the calculation of interest for that month. Interest on it will start accruing from the 5th of the next month.

Understand with calculations

Suppose you have a balance of Rs 4,00,000 in your PPF account on April 1. The current interest rate (for example) is 7.10 per cent per annum.

Situation 1

Minimum balance for the month of April (from 5th to end of the month): Rs 5,00,000 + Rs 60,000 = Rs 5,60,000
Interest for April (approx): (Rs 5,60,000 * 7.1%) / 12 = Rs 3,313.3

Situation 2

Minimum Balance for April (from 5th to the end of the month): Rs 5,00,000 (as a Rs 60,000 deposit happened after 5th)
Interest for April (approx.): (Rs 5,00,000 * 7.1%) / 12 = Rs 2,958.33

Difference

By depositing the money just for one day, you lost interest of Rs 354.97 (Rs 3,313.33 - Rs 2,958.33) in the month of April alone.

How does it affect you for a long time?
Similarly, if you deposit a lump sum amount after the 5th of every month or year, the loss could run into thousands over a period of 15 years or more.

FAQs

Can I invest in PPF for more than 15 years?
Yes, extension is possible after 15 years in blocks of five years.

Interest calculation on PPF
Interest on PPF is compounded annually, but it is calculated every month. Interest is calculated on the lowest balance in the account between the fifth of the month and the last date of the month.

Can I open more than one PPF account?
No, only one account is allowed per individual.

Is there a joint PPF account facility in PPF?
No, there is no joint PPF account available.

Can I add a nominee to my PPF account?
Yes, you can add a nominee to your PPF account.

What is the minimum and maximum investment limit in PPF?
An account holder can invest a minimum of Rs 500 per annum and a maximum of Rs 1.5 lakh per annum in a PPF account.