Why should you invest ₹1.5 lakh in PPF before April 5? Know the reasons here
public provident fund (PPF) is common among most retail investors who want to not only earn a higher rate of interest by investing in small saving schemes but also save income tax. Currently, investment in PPF instruments earns 7.1 per cent per annum and the maximum investment is ₹1.5 lakh. Another key feature that one should keep in mind is that the interest is calculated on a monthly basis and is based on the lowest balance between the 5th and last date of every month.
Although interest is calculated on a monthly basis, it is credited to the account holder’s account at the end of the financial year. It’s because of this reason that investors may decide to maximise their earnings by investing on the 5th or before this date every month. Let us try to understand this in detail.
For example, you have ₹50,000 in your PPF balance. And you are investing another ₹1 lakh in the PPF account on the 5th of a month in scenario I, and on the 10th of a month in scenario II. In scenario one, at the time of calculating interest, the principal amount will be taken as the minimum of the amount on the 5th and the last date of the month, which will be ₹1.5 lakh (10,000 + 1,00,000).
This equals to ₹887.50. In scenario 2, the principal amount will be the minimum of two amounts which will be ₹50,000. This comes to ₹295.8.
So, while you have ₹1.5 lakh in the PPF account in both scenarios, the interest earned on your amount differs widely because of the date on which you decided to invest the money. And what if you decide to invest all of the annual limit in the first month itself? That will maximise the earnings even further. Let us understand more about this here.
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