The Public Provident Fund (PPF) is perhaps one of the best financial decisions anyone can take in the form of savings for the long run. But it is more than that. Timing matters more than you ever thought.
Every financial expert recommends depositing your full Rs. 1.5 lakh PPF investment that he advises doing right between April 1st and 5th every year. But why such a cut-off date? Let us break it down into layman’s terms for clarification.
PPF Interest Calculation- the essential rule
PPF interest is calculated using a particular rule: it is credited on the lowest balance between the 5th and the last day of that month. This means:
- If you happen to deposit before April 5th, all money that you deposit earns interest for the full month.
- If you happen to deposit after April 5th, you miss out on interest for those initial days.
Example: Investing Before vs. After April 5th
Scenario 1: Deposit Rs. 1.5 Lakh Before April 5th
- April 1st Balance: Rs. 3.5 lakh
- April 3rd Deposit: Rs. 1.5 lakh
- New Balance: Rs. 5 lakh
Interest Calculation:
(7.1% / 12) × Rs. 5,00,000 = Rs. 2,958
Scenario 2: Deposit Rs. 1.5 Lakh After April 5th
- April 1st–8th Balance: Rs. 3.5 lakh
- April 9th Deposit: Rs. 1.5 lakh
- New Balance (April 9th–30th): Rs. 5 lakh
Interest Calculation:
(7.1% / 12) × Rs. 3,50,000 = Rs. 2,071
Difference? Rs. 887 Lost in Just One Month!
While amounts like Rs. 887 may seem small, loss over 15 years (PPF maturity period) is compounded significantly. By depositing early, you maximize your every year earnings, leading to higher wealth in the longer term.
Is it a Must-To Invest Before 5th April?
No, not indeed compulsory, but it is beneficial. If you have the funds, go for investing before the 5th for maximum returns. Still, if you can’t do it:
- Monthly investments (Rs. 12,500) are a realistic alternative.
- Late deposits earn interest as well, just slightly lower.
Final Verdict
To lose less, the best would be investing your complete Rs. 1.5 lakh before April 5th, but otherwise, consistent investments will secure you a good future as well.