Public Provident Fund: Here’s why you should invest in PPF before this date of the month

According to PPF Rules, the interest in Public Provident Fund deposits is calculated on the minimum balance between the 5th and at the end of the month. Even though the interest on PPF deposits is calculated and becomes due every month, it is credited only at the end of the financial year.

Hence, if you are also planning to invest in PPF in the new financial year 2020 to save tax or simply as an investment then you should do it before the 5th of April. And if you are making investments in PPF in installments then you should do it before the 5th of every month in which you invest. Experts say, doing so will get you the maximum amount of interest for your deposits.

For instance, if you start making investments from the month of April, and do it after the 5th of the month, then you would lose out on the interest for the month of April. The difference may not seem much now, but the PPF account comes with a lock-in period of 15 years, because of which over the long-term due to compounding, you may lose a lot of money. However, if you do it before the 5th of the month, the interest that will be due in your PPF account for the month of April along with the following months.

With an interest rate of 8 per cent throughout the lock-in period of 15 years of a PPF account, an investor depositing Rs 1.5 lakh every year at the start of the financial year, before the 5th of April each year, will earn around Rs 3.5 lakh more than the investor who deposits at the end of the financial year.

Note that, once you open a PPF account, you have to make a contribution in the same financial year first. After that, you need to hold the account for 15 financial years before it can be closed.

You need to make contributions in each of those 15 additional financial years, making in total 16 financial years wherein you can make a contribution to the PPF account before it can be closed or extended in the block of 5 years each.

You can only invest a maximum of Rs 1.5 lakh in PPF in a financial year, as per current income tax laws. You can make the investment either as a single lump sum or in a maximum of 12 monthly contributions.

Here are some points to keep in mind;

1. PPF is one of the most popular investment choices among investors as it currently falls under the EEE tax status. This means the principal contributed, the maturity amount and the interest earned is exempt from tax.

2. Additionally, if you have two PPF account, one in your own name and a separate one in the name of your minor child, then the maximum amount that can be deposited for both the accounts cannot exceed the total of Rs 1.5 lakh in a single financial year.

3. If you have linked your PPF account with any long-term goals of your, such as retirement, child’s education or marriage, you can accumulate more by making your deposits before the 5th of every month.