Business Desk – PPF i.e. Public Provident Fund is a popular option for safe investment for long term. In this, a maximum of Rs 1.5 lakh can be deposited every financial year. But it is not just the amount of money that is deposited that is important. The date on which you deposit the money also affects your total returns.

If you deposit Rs 1.5 lakh annually in PPF, there can be a difference of around Rs 1.2 lakh in 15 years between depositing the entire amount before 5th April and depositing the money in installments every month.

How is interest calculated in PPF?

According to PPF rules, every month's interest is calculated on the basis of the lowest balance in the account between the 5th and the last day of the month. Therefore, if you deposit money after the 5th of any month, then interest for that month is not added on that deposited amount. This is the reason why the beginning of April is considered the most important for those who invest the entire amount annually.

Benefit of depositing money before 5th April

If you have Rs 1.5 lakh available for the entire financial year, then if you deposit it in your PPF account before 5th April, the entire amount gets interest for a longer period. In comparison, if the same amount is deposited in installments of Rs 12,500 every month, then the benefit of interest is available only after each installment is deposited. That is, in both the cases the annual investment will remain only Rs 1.5 lakh, but due to the money reaching the account at different times, the amount of interest will be different.

How much difference can 15 years make?

According to the estimate assuming a constant interest rate of 7.1%, if Rs 1.5 lakh is deposited every year in lump sum before 5th April, then after 15 years a fund of about Rs 40.68 lakh can be created. The total investment in this will be Rs 22.5 lakh and the remaining amount will be made from interest. At the same time, by depositing Rs 12,500 every month, it is estimated that after 15 years, a fund of about Rs 39.48 lakh will be created. In this way, there can be a difference of about Rs 1.20 lakh between the two methods.

Different ways to estimate investment

If Rs 1.5 lakh is invested annually, the estimated amount in lump sum investment in April can be around Rs 40.7 lakh. If the amount is deposited at an interval of six months, it can be around Rs 40.1 lakh, at an interval of three months it can be around Rs 39.8 lakh and if Rs 12,500 is deposited every month, it can be around Rs 39.5 lakh. This is just a guess. The interest rate of PPF is decided by the government every quarter, so if the interest rate changes in future, the actual maturity amount will also change.

Why is 5th of the month important?

While depositing money in PPF, it is important to keep in mind the 5th of every month. For example, if you deposited Rs 12,500 on the 4th, that amount may be included in the interest calculation for that month. But if deposited on 6th, you will not get the benefit of interest on that amount that month. Therefore, for those who invest in PPF through monthly installments, they should also try to deposit the amount in the account between 1st and 4th.

Main rules of PPF

A minimum of Rs 500 and a maximum of Rs 1.5 lakh can be deposited in the PPF account in a financial year. Its normal maturity period is 15 years. After this the account can be extended for another 5 years. PPF is considered as EEE i.e. Exempt-Exempt-Exempt category investment. That is, under the rules, there is tax benefit on the amount deposited in it, interest and the amount received on maturity. The interest rate of PPF is decided by the government every quarter.

Who can open PPF account?

Any person can open a PPF account in his/her name in a bank or post office. The guardian can also operate the account in the name of the minor. However, the maximum limit of deposit in the account in a financial year remains only Rs 1.5 lakh. Keep in mind: PPF interest rate is not permanent. Therefore, the 15-year figures given above are estimates assuming a constant rate of 7.1% throughout. Actual returns may be more or less depending on the interest rates applicable in future.