The timing of your PPF investment also impacts your returns. Depositing money before a specific date each month can earn higher interest. Learn about these important PPF rules, potential returns over 15 years, and important investment tips.
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The Public Provident Fund (PPF) is one of the most popular savings schemes in the country. Most people invest in it to save taxes. However, it’s a mistake to think of it solely as a government-guaranteed tax-saving scheme. It’s also an easy way to build substantial savings over the long term and earn tax-free returns. However, many investors overlook a small detail that could reduce their interest earnings.
Why is the 5th of every month important?
PPF interest is calculated based on the lowest balance in the account between the 5th of each month and the last day of the month. Therefore, if you deposit money on or before the 5th of a month, interest starts accruing from that month. However, if the deposit is made after the 5th, interest accrues from the following month.
At first glance, this difference may seem small. But with a 15-year plan like the PPF, this small precaution can make a big difference. Over the long term, you earn higher interest and benefit better from compounding.
Higher returns on investment in April
A maximum of ₹1.5 lakh can be invested in PPF during a financial year. If an investor has sufficient funds, they can deposit the entire amount in April. By doing so, the entire amount earns interest throughout the year, increasing the overall return on the investment.
However, most working individuals find it more convenient to invest monthly. The most important thing for such investors is to deposit their installments before the 5th.
You make this mistake unknowingly
According to experts, many people deposit money after the 5th of each month, unknowingly reducing their returns. Some investors also forget the annual minimum investment requirement. Many people misunderstand that the PPF interest rate remains the same for the entire 15 years.
To avoid these mistakes, you can use features like auto-debit or standing instructions. This ensures timely investment and avoids interest loss.
Important rules of PPF
PPF is a long-term savings scheme. It has a lock-in period of 15 years, meaning you have to wait 15 years to fully withdraw your invested amount. However, partial withdrawals are available from the seventh financial year, subject to certain conditions.
The minimum annual deposit required for this scheme is Rs 500. The maximum investment allowed in a financial year is Rs 1.5 lakh.
Interest rates are not always the same
Currently, PPF offers an annual interest rate of 7.1 percent. However, this rate is not permanent. The government reviews it quarterly and may make changes if necessary. Therefore, the interest rate may increase or decrease in the coming years.
How much money can be made in 15 years?
Based on current interest rates, a person depositing Rs 5,000 every month for 15 years could have a tax-free corpus of around Rs 15,000-16,000 upon maturity. If the monthly investment is increased to Rs 10,000, this amount could reach over Rs 30,000.
Investors who invest the full limit of ₹1.5 lakh annually could have a corpus of over ₹40 lakh after 15 years. However, the actual return will also depend on future changes in interest rates.
Account can be continued even after 15 years
A key feature of PPF is that it’s not mandatory to close the account after the 15-year term is complete. Investors can extend the account in blocks of five years. They can either continue with new investments or continue earning interest on the balance in the account without making any additional investments.
This allows savings to grow over a longer period of time and the benefits of compounding continue to accrue over a longer period of time.
A reliable option amid market volatility
Today, investors have a wide variety of investment options available. Many of these options promise high returns, but they also carry high risks. The strength of PPF is its simplicity and stability.
It’s immune to daily market fluctuations. For those who invest regularly over a long period of time, it remains a reliable option for building substantial savings. Furthermore, the investment, interest, and maturity proceeds are all tax-free, further increasing its appeal.
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