Invest in PPF by 5th of every month to get maximum gains — here's how

Individuals who invest in Public Provident Fund (PPF) should always try to deposit their instalments before or on the fifth of every month. This helps gain interest benefits for that month, according to the PPF rule.

But how?

The answer is that the interest rate offered on PPF accounts — currently 7.1 percent — is calculated on the minimum balance in the account between the fifth day of the month and the last day of the month.

The interest on the amount deposited is calculated every month in PPF, but the interest is credited into the account at the end of the financial year, that is, on March 31 of every year. The interest becomes payable for that month if the deposit is made before the fifth of that month.

So, one can get the maximum amount of interest on interest if the amount is deposited before the fifth. Somebody, who does it after the fifth day of the month, may lose out on substantial interest income for that particular month.

Let’s assume a PPF account had a balance of Rs 1 lakh on April 5, 2022, and if the investor made an additional deposit of Rs 1.5 lakh on April 6, 2022, then as per rules, the interest would have been accrued on the minimum balance in the account between April 5 and April 30, 2022, which in this case would have been Rs 1 lakh.

This means the investor would have lost out on the interest of Rs 1.5 lakh for April 2022.

Now, if the deposit was made on or before April 5, 2022, the interest would have accrued on the entire amount, which is Rs 2.5 lakh.

So,  investors should be mindful of the timing of their investments to maximize their returns. They should make it a rule to invest on or 5th of every month.

It should be remembered that although the amount of interest foregone due to delayed investment appears small, the interest on the same amount, if compounded over a long period, could make a significant difference to one’s overall return.

For the uninitiated, PPF is a retirement-focused investment instrument that comes with Exempt-Exempt-Exempt (EEE) tax status. The maturity amount and the overall interest earned during the investment period are tax-free.