The Public Provident Fund (PPF) is a popular investment scheme in India that offers a long-term and tax-free savings option. However, investors need to keep in mind certain rules to make the most of their investment. One such rule is that individuals holding a PPF account must deposit their contribution for the financial year 2023-24 before April 5 to earn higher interest.
If an investor deposits money into a PPF account after April 5, the account holder will earn lower interest on the PPF balance. This is because the interest is calculated based on the lowest balance in the PPF account at the end of the fifth day of a month and end of the month. Therefore, it is crucial to ensure that a lump sum investment is credited into the PPF account before April 5.
Monthly payments made to a PPF account also need to be credited before the fifth of every month to earn higher interest. The interest is calculated on a monthly basis but credited at the end of the financial year.
For example, an individual who invests Rs 1.5 lakh in a PPF account on April 4 will earn an interest of Rs 10,650 at an assumed interest rate of 7.1% per annum throughout the year. However, if the deposit is made after April 5, the individual will earn interest only for 11 months, resulting in a loss of Rs 9,763.
It is essential to keep in mind the compounding aspect of the PPF scheme as it has a lock-in period of 15 years. Investing Rs 1.5 lakh every year between April 1 and April 5 will fetch an interest of Rs 18,18,209 and a maturity amount of Rs 40,68,209. In contrast, making a lump sum investment towards the end of the financial year will result in a loss of interest, reducing the maturity amount to Rs 37,98,515 after 15 years.
Making a lump sum investment into the PPF account between April 1 and April 5 of every financial year will also earn a higher interest than monthly deposits. An investor who invests Rs 12,500 every month will earn a maturity amount of Rs 39,44,599. However, making a lump sum investment into the PPF account between April 1 and April 5 will result in an extra interest of Rs 1,23,610.
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