“Interest is calculated between the 5th day of the month; this helps in the maximum gain of interest for the subscriber”
PPF (Public Provident Fund) is one of the popular investment schemes in India, as it is the safest way of investing money with the gain of interest on the invested proceeds with the tax exemption. As PPF grants security and tax exemption, many prefer to invest their money in the form of PPF accounts. But it is recommended to invest the installment in PPF by the 5th of every month because, as per the PPF rule investor should invest either before 5th of every month or on the 5th of the month, that will help the investor to gain interest benefit for that particular month.
PPF is one of the popular investment plans especially concentrated on retirement savings as it gains a moderate interest rate and the securely saved money and comes with tax-free savings. Last five years that is 2012-2013 PPF interest rates were 8% interest rates. Gradually the interest rates were lowered, presently in 2020, the interest rate is lowered to 7.1%. For the PPF account, the interest is compounded annually, and the interest that occurred every month is calculated, and the interest is credited every year on the 31st of March. The investor has the knowledge of the timing of their investment so that they can make out most of their return or gain maximize returns.
As per the PPF rule, the investor should deposit the installment either before or on the 5th of every month, as the interest rates offered on the PPC accounts will be calculated on the minimum balance between the 5th day of the month and on the last day of the month. The investor can invest the minimum of Rs 500/- or the maximum Rs 1.5 lakh and interest will be calculated on the PPF account proceeds but the interest will be credited at the end of the financial year. And those who deposit before or the 5th day of the month will gain maximum interest. If the subscriber deposit after the 5th of the month, the subscriber will lose substantial interest for that month.
Why should the investor invest before 5th of the month beneficial in the long run?
Subscribers know why it is important to deposit installment before 5th of each month. Suppose the investor invests the maximum of 1.5 lakh of the amount in the PPF account every year, assume that the interest rate is 8.7% across the tenure of the PPF. For more understanding check the below image to understand the maturity value of the PPF of the year. Also, check the maturity value after 15 years. In the image the maturity value of the amount Rs 31,187 at the end of the term is Rs 44,73,197. But if the subscribes has invested before the 5th of each month the subscribes would have gained about 2.5 times on the monthly investment.
The above picture helps you to understand the difference of profit gain on interest on the invested amount before and after the 5th day of each month of the PPF account tenure.