The depositor will not get any interest for the year even if he/she makes a lump sum investment towards the end of the financial year.
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New Delhi: Are you planning to invest in Public Provident Fund (PPF) to save tax? Make the contribution on or before 5 April 2023 to get maximum benefit of your investment. Similarly, you can invest a lump sum on or before April 5 of a year in order to get the interest for the whole year.
Why Is April 5 Important?
PPF accounts offer an interest rate of 7.1 per cent currently. It is calculated on the minimum balance in the account between the fifth day of the month and the last day of the month.
Even as the interest of the amount invested is calculated every month in PPF, the interest is credited into the account of the investor, at the end of the financial year, that is, on March 31 of every year. If you make the deposit before the fifth, interest becomes payable for the month.
Let’s consider an example. You make a lump sum investment of Rs 1.5 lakh on or before 5 April 2023. So as stated above, the minimum account balance between fifth and end of the month, Rs 1.5 lakh in this case, is used to calculate the interest.
The current rate of interest is 7.1 per cent. Upon calculation, the individual will earn an interest of Rs 10,650 on the Rs 1.5 lakh deposit.
Public Provident Fund is a long-term investment scheme, and compounding aspect of this investment scheme should also be taken into consideration. The lock-in period for the scheme is 15 years. In that scenario, a PPF investment of Rs 1.5 lakh made between April 1 and April 5 every financial year will fetch an interest of Rs 18,18,209 and a maturity amount of Rs 40,68,209.
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The depositor will not get any interest for the year even if he/she makes a lump sum investment towards the end of the financial year. If this is continued for a 15 year lock-in period, the PPF account will fetch an interest of only Rs 15,48,515 and a maturity amount of only Rs 37,98,515.
Why Is PPF A Decent Investment Bet
Public Provident Fund is one of the few investment categories where contributions and principal withdrawals are exempted from the tax. Even the returns generated during the holding period are exempted from tax.
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“Given inflation is below PPF rates, it’s possible to earn real returns in a tax exempt fashion. Hence, the tax advantage offsets for lower interest rate which is a key feature to consider PPF as a choice,” Abhishek Banerjee, Founder & CEO at Lotusdew Wealth told CNBC-TV18.com.
