PPF: How to make the best of Public Provident Fund

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August 09, 2021 12:19 PM

If you put your money in the PPF account before this date of each month, your contribution will earn interest for that month also.

public provident fund, Public Provident Fund, PPF, EPF, GPF, minimum investment in PPF, maximum investment in PPF, cash deposit in PPF accountIf you are unable to put in a huge amount at one go, you could put the money in 12 instalments, wherein each requires an investment of a minimum of Rs 500 monthly.

The Public Provident Fund (PPF), the government-backed small savings scheme run by the Ministry of Communications, can be looked at for regular deposits. Experts say the popularity of this scheme as an investment option other than its tax benefit is because it can be started with a minimal investment amount.

Along with the safe and secure nature of this investment, the triple tax break — EEE (Exempt, Exempt, Exempt) – also lures investors to this scheme.

Even though PPF offers assured returns every year, the exact figure fluctuates. Interest on PPF is compounded annually and gets credited to the depositor’s account on March 31 every year. Even though the interest is credited into the account on the last day of the financial year, it is calculated every month. Note that, interest is payable for a month only if the deposit is made before the 5th of that month. Hence, under the PPF scheme, interest is calculated every month, compounded annually, and is reset every quarter.

The catch about PPF is that it comes with a lock-in period of 15 years. The date of maturity when calculating the tenure is not calculated from the date of opening the account. It is instead calculated from the end of the financial year in which the deposit was made, irrespective of the month or date in which the account was opened, hence, it is actually 16 years.

An investor can avail deduction under Section 80C of the I-T Act, up to Rs 1.5 lakh, and need not pay tax on part of the income that equals the invested amount. Additionally, the investor also doesn’t have to pay tax on the returns earned during the accumulation phase, or at the time of withdrawal.

Here is how you can get the best out of your PPF account:

Industry experts say one should use their PPF account as a retirement savings tool, or for other long-term goals such as a child’s higher education, child marriage, starting a business, etc. Just aim it towards a goal, having a long-term perspective in mind.

One can invest in the account every year, from a minimum of Rs 500 to a maximum of Rs 1.5 lakh, under Section 80C. An investor with a long-term goal should deposit the maximum amount that can be deposited – Rs 1.5 lakh every year – if it fits their asset allocation and long-term goals.

If you are depositing Rs 1.5 lakh at one go, try to deposit it in the first month of the financial year, ie, in April, and before the 5th. It may be noted that the interest is calculated on the lowest balance between the 5th and the last day of every month. So, if you put your money in the PPF account before the 5th of each month, your contribution will earn interest for that month also.

Additionally, if you are unable to put in a huge amount at one go, you could put the money in 12 instalments, wherein each requires an investment of a minimum of Rs 500 monthly. In this case, also, try your best to put your money in the PPF account before the 5th of that month.

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