Public Provident Fund or PPF is an instrument for long-term, risk-free accumulation of money. It is ideal for building a cool corpus over 30 or even more years. But how many of us really know what the best way is of investing in this scheme so that returns are the highest?
Investment strategist Nilanjan Dey says that many among those who put their money in PPF think that investing some money at any time of the year is fine. It is not. One has to keep in mind that the rate of interest in PPF has come down to 7.1% and has not gone up in the past four years. Returns on FDs in many banks are higher than that offered by PPF. Under such circumstances, it is all the more necessary that one knows the right way of investing in it.
PPF rate: Earning interest for the month
Here lies the significance of the fifth day of every month. Depositors should put their contribution in their PPF account within the fifth of every month. It would enable them to earn interest on that contribution for that specific month too.
The government fixes the interest rate every year and adds it to every PPF account on March 31. But it is computed every month.
Dey who is the director of Wishlist Capital said, “The fifth day of every month is important since if the contribution is made after that date, it does not earn interest for that month. So, always try to put in your money within that cut-off date to earn the most interest.”
The maximum amount that one can invest in PPF in a year is Rs 1.5 lakh. If you want to invest Rs 1.5 lakh in one go, try to invest it by April 5. Even if you invest it a day later, you would not get interest for April. You would be paid interest from May ie. for 11 months.
In other words, that depositor would earn an interest of Rs 9,762.50 as interest for the 11 months between May and March of that financial year. If he/she could have deposited by April 5, the total interest earned for Rs 1.5 lakh for that year would have been Rs 10,650.
PPF Interest on lowest balance
According to the rules, interest is computed based on the lowest balance in the PPF account between the 5th of every month and at the end of month. Any addition to the lowest balance by the 5th, therefore, helps in raising the interest accrued for the month.
This leads all investment advisors to say that the most prudent way to invest any amount in the PPF is to do it by the 5th day of any month.
PPF is a scheme where the interest, principal and the entire proceeds is free from Income Tax. It is eligible for Income Tax deduction according to Section 80C of the Income Tax Act, 1961.
A large number of people still swear by Public Provident Fund or PPF. But how many know what the best way is to extract the biggest interest income from this scheme. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
