Make More Money From Your PPF Account

If you deposit money early in the month you would get the advantage of interest added on the contribution before 5th of the month. You can also invest a lump sum on or before 5th April of a year in order to get the interest for the whole year.

Deposit your money early in the month

The PPF calculates interest on the lowest balance in the month between the 5th of each month to the end of the month. Depositing your money on or before the 5th of the month and you could benefit on the interest added on your contribution before the 5th of the month. Investing after the 5th and the investment for the month is not calculated. If you’re still wondering if it makes any difference at all - assuming that the interest rate is at 8.7% per annum, and that you invest the maximum of Rs.1.5 lakh every year - investing before the 5th of the month will add approximately a sizeable Rs.31,000 at the end of 15 years - the end of the lock-in period.

Invest a lump sum at the start of the Financial Year

Since the limit of investing in the PPF is curtailed to Rs.1.5 lakh per year, investing a lump sum - say Rs.1 lakh - Rs.1.5 lakh - at the start of the financial year (on or before the 5th of April) will result in the interest added for the whole financial year. Meaning that, lump sum investments made after the 5th of April will be calculated for the next year. For example, since the PPF revolves around the financial year (April to march), investing a lump sum on April 1, 2017, your account will mature in March 31, 2033, while investing on April 6, 2017 will result in your account maturing on March 31, 2034. In brief, starting your PPF investment with a lump sum at the start of the financial year (before April 5) will result in the interest compounded for the whole year, rather than the next year.

Ways to use the PPF corpus

The PPF has a lock-in period of 15 years. While most people look at this as a drawback as a result of their impatience, the corpus with a high return on investment as a result of the interest rate can come in handy when one decides to retire. Considering that the PPF interest rate is at 7.1% (FY 2019-2020), it is much more beneficial that parking one’s money in a savings account which has an interest rate of 7.9% max. Having said that, PPF holders can make a partial withdrawal after seven years of opening the account in case of an emergency that is completely tax-free. Withdrawals after the lock-in period (15 years) is tax-free as well. After three years of opening the account, PPF account holders can take a loan against their PPF funds. By doing so, the loan interest rate is comparatively lesser. Lastly, it is notable to mention that the PPF enjoys dual tax benefits as the withdrawals as well as the interest added to the sum in the PPF accounts are both tax-exempted under section 80C of the Income Tax Act.

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