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Why You Should Invest in Your PPF Account before 5th of Each Month?

Why You Should Invest in Your PPF Account before 5th of Each Month?

Interest doesn’t take leaves. That’s right. When you take a loan, you pay interest for every day you have espoused. When you make a fixed deposit, the bank pays you interest for each day. For interest, there’s no conception of working andnon-working days, carnivals, and public leaves.

still, in the case of Public Provident Fund( PPF), interest does take a break. How? For that, we must dig deeper into how PPF interest computation works.

How Does Interest computation Work in PPF?

PPF interest rate, as we know, is blazoned by the Ministry of Finance every quarter. For the ease of computation, let’s assume the PPF interest rate remains unchanged throughout the time. PPF interest is calculated every month but is credited to your account only at the end of the fiscal time. thus, the interest added to your PPF account at the end of the fiscal time will be the sum of yearly interest for the 12 months.
So far so good. Then comes the twist. PPF interest is calculated on the smallest balance between the 5th of the month and the end of the month.
thus, if you deposit Rs1.5 lacs in PPF on 6th April, this quantum will earn interest for only 11 months. And not 11 months 25 days. The interest has indeed taken a vacation. Had you deposited the quantum a day before( April 5), you would have earned interest for the entire 12 months.
Note that PPF is a borrowing by the Government of India. The interest computation medium is specified in the PPF Act. thus, while you open a PPF account with banks and post services, they’ve no say-so in interest computations.
And this rule isn’t just applicable to the month of April. That’s how it’s for all the months.

What Difference Does This Make?

To be honest, not much.
Let’s say-so, at the end of FY2022( as on March 31, 2022), both you and I’ve Rs 10 lacs in our PPF account.
You invest Rs1.5 lacs in the account of April 5, 2022. I’m lazy and invest Rs1.5 lacs in the PPF account on April 6, 2022.
Let’s further assume that the PPF interest stays constant at 7 sire during the time. former time end balance will earn the same interest for both of us.
10 lacs X 7 = 70,000
Since you invested on April 5, your fresh investment in the time will earn interest for 12 months. Rs1.5 lacs X 7 = Rs 10,500
I invested on April 6, I’ll earn interest for 11 months. Rs1.5 lacs X 7 X11/12 = Rs 9,625
Your balance at the end of FY2023( March 31, 2023) = Rs 10 lacs1.5 lacs 70,000 10,500 = Rs
My PPF balance at the end of FY2023( March 31, 2023) = Rs 10 lacs1.5 lacs 70,000 9,625 = Rs
A difference of only Rs 875. Doesn’t feel big enough to worry too important about.

How important Difference Will This Make over 15 Times?

Let’s assume you open your account on April 5, 2022. I open on April 6, 2022. These accounts will develop on March 31, 2038. You have an option to extend these accounts in blocks of 5 times but let’s not go there.
Both of us invest Rs1.5 lacs every time. You invest on April 5. I invest on April 6. What will be the difference in maturity quantities?

thus, the difference over 15 times is only aboutRs. 24,500. Not much.
still, it’s important to be apprehensive of therules.However, 000 to your PPF account on 10th of each month, now you know you’re better off investing on or before 5th of each month, If you had set up a recreating instruction to transfer Rs 10. By the way, PPF isn’t the only product with similar unique interest computation rules. In Sukanya Samriddhi account( SSY), you must invest before 10th of each month to earn the interest for the month. Plan consequently.

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