From interest rate to compounding benefits — Ten things to know about PPF investments

PPF account can be opened by a single adult who is an Indian resident. Additionally, a guardian can open it on behalf of minor/person of unsound mind

Only one account can be opened all across the country either in post office or any bank.

The interest rate on PPF is subject to quarterly reviews, potentially changing in response to government announcements.

While small savings rates have experienced adjustments, the PPF rate has remained untouched since its reduction in April-June 2020, falling from 7.9 percent to 7.1 percent.

Financial experts emphasise the power of compounding with PPF. The longer your money stays invested, the faster it grows. Hence, periodic, long-term investments can be a potent strategy.

PPF accounts have a fixed maturity period of 15 years, with calculations beginning from the end of the financial year in which the first deposit was made.

However, the same can be extended within one year of maturity for a further five years and so on. Also, the PPF account can remain active even after maturity without making any fresh contributions. It continues earning tax-free interest after maturity, according to experts.

After completing the third year but before the fifth year, investors can avail of a loan against the PPF account. Additionally, for emergencies, partial withdrawals are allowed after the seventh year.

Investors can open a PPF account with a minimum contribution of just Rs 500 and a maximum of Rs 1.5 lakh in a financial year. All investors need are Aadhaar card, savings bank account, and a net banking login ID.

In the event of premature closure of a PPF account, a penalty is imposed in the form of a 1 percent reduction in the applied interest rate for the period the account was held.

Premature withdrawals from the PPF account are permissible only after completing five financial years from the end of the financial year in which the first deposit was made.

Individuals who invest in 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. The interest rate offered on PPF accounts 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.