PPF yearly contribution: Here’s why April 5 deadline is so crucial for investors

Investors putting their money in Centre-backed Public Provident Fund (PPF) scheme have always been advised to do so before April 5. The reason: if an investor deposits the entire amount of Rs 1.5 lakh between April 1 and April 5, then he or she gets the advantage of interest added to the contribution before the fifth of the month. Therefore, he can earn a higher interest and make the most of the investment scheme.   

PPF scheme rules 

Investors should note that the interest rate on PPF accounts is calculated on the minimum balance between the fifth day of the month and the last day of the month. Therefore, when one deposits the money before the fifth of every month, he can earn the interest for the entire month. But if someone does it after the fifth day of the month, he will lose out on substantial interest income for that particular month.

One should note the PPF scheme rules state that the interest is calculated on a monthly basis, but is credited to the investor at the end of the fiscal, i.e. March 31. Hence, if an individual is investing at a monthly basis, he or she should ensure that the money is deposited before the fifth of every month to earn higher interest. 

April 5 and yearly interest 

Based on the above principle, when an investor puts Rs 1.5 lakh before April 5, he would earn the interest at the rate of 7.1 per cent (the current interest rate) on the lowest account balance between April 5 and the end of the month.  

For example, the lowest balance is Rs 1.5 lakh. As per the rules, the investor will earn an interest of Rs 10,650 on the Rs 1.5 lakh deposit made before April 5 at the end of the fiscal. Whereas, if he does it after April 5, he will lose out on the interest of the first month.  

Then for the entire financial year, the individual will earn interest for only 11 months, which will exclude the month of April. For the whole year, this would come to Rs 9,762.50 on a deposit of Rs 1.5 lakh at the current interest rate of 7.1 per cent. 

The compounding interest 

The PPF scheme is a long-term investment scheme and is based on the principle of compounding interest. The scheme has a lock-in period of 15 years. If an investor periodically and systematically invests between April 1 and April 5 every year for 15 years, he can earn Rs 18,18,209 and a maturity amount of Rs 40,68,209 upon maturity at the end of 15 years.   

However, if the investor does it last minute every financial year for 15 years, he would earn an interest of Rs 15,48,515 instead of Rs 18,18,209. The maturity amount will also come down to Rs 37,98,515 instead of Rs 40,68,209. 

Besides, investing in one go every financial year is also preferable to monthly deposits. If an individual makes a PPF investment of Rs 12,500 before the fifth of every month, the individual will earn the amount of Rs 39,44,599 at the time of maturity after 15 years.  

Whereas, he can earn extra interest of Rs 1,23,610 by making a lump sum investment into the PPF account between April 1 and April 5 of a financial year. 

Recently, the government revised the interest rates of all small savings schemes, like Senior Citizen Savings Scheme, Monthly Income Savings Scheme, National Savings Certificate, Kisan Vikas Patra, and Sukanya Samriddhi Account Scheme. Only the interest rates on the Public Provident Fund (PPF) and Post Office Savings Account have been kept unchanged.

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