Investing in Public Provident Fund (PPF) before April 5 can help you maximize the interest payout for the year. Since tomorrow is April 5, now is the chance to do so. If you are wondering how to go about it, read on.
Currently, PPF is offering an interest rate of 7.1 per cent. The interest rate is subject to change every quarter but has remained unchanged since April 1, 2020.
Recently, the government revised rates for other small savings schemes, including Senior Citizen Savings Scheme (SCSS), National Savings Certificate (NSC), Kisan Vikas Patra (KVP), Post Office Monthly Income Scheme (POMIS) and many others. Before we get into the details of how to maximise interest payout in PPF, let’s understand the features of the schemes.
What Is PPF?
PPF is a government-backed saving scheme with several benefits, including guaranteed benefits.
PPF offers tax benefits not only on the deposits but also on the interest and the maturity amount. So, this EEE (exempt-exempt-exempt) investment is a preferred choice for many. EEE means it offers tax deduction benefits at the time of investment, has no tax incidence during the accumulation phase and is tax-free at the time of withdrawal.
The minimum amount to start this account is only Rs 500, and the maximum is Rs 1.50 lakh in a year. You can invest in PPF annually, quarterly, or monthly.
The scheme has a lock-in period of 15 years, and one can extend this in blocks of five years.
How Can PPF Interest Payout Be Maximised?
There are two reasons why interest payment is maximised if you invest Rs 1.5 lakh in PPF before April 5.
One, if you choose to invest the maximum limit of Rs 1.5 lakh by April 5 of the year, you will get maximum interest on the amount as you would be eligible to earn interest over all the 12 months.
Two, PPF credits the interest in the account annually at the end of the year, on March 31, but the interest is calculated every month on the minimum balance between the 5th and the end of the month.
For example, if you have Rs 50,000 in your account on April 1. Let’s suppose you invest Rs 1.5 lakh on April 15 in your PPF account. In this case, the interest will be calculated on the minimum balance of Rs 50,000 and not on the current balance of Rs 2 lakh because you deposited Rs 1 lakh in the account after April 5.
PPF interest is calculated on a monthly basis. The interest is calculated on the minimum amount balance in the account between the 5th and the end of the month. Even if you are investing monthly, putting the money before the 5th of every month will help you maximise the interest payout.
“If one invests in PPF after 5th April, the investor will earn lower interest. Investing before 5th April will ensure that the entire 12 months of interest is earned by the investor. For example, at a 7.10 per cent interest rate, on Rs 1.5 lakh, one earns Rs 10,650 for 12 months if invested before 5th April. If invested on the 6th of April, one would earn 11 months interest at Rs 9,762.50,” says Rushabh Desai, founder of Rupee With Rushabh Investment Services.
What Should You Do?
To maximise the interest payout on PPF deposits, you should choose to deposit by the 5th of the month, and the sooner in the financial year, the better. If you deposit towards the end of the financial year in March, you will surely save income tax but earn interest only for one month—March—for that FY.
Thus, investment in PPF made early in the financial year, particularly by the 5th of April, can make a huge difference in the final corpus size.