What is PPF?
A Public Provident Fund is a government-backed savings scheme that provides individuals with a secure, no-risk investment vehicle and an attractive, assured return that helps them build long-term wealth through regular investments. This scheme is a government-backed saving scheme that helps individuals accumulate long-term wealth.
Benefits of Public Provident Funds
- PPF Account Tenure: A PPF account is typically designed for a 15-year tenure, though you can extend it for a further 5 years by requesting an extension more than a year prior to the account’s maturity date. In this case, you still continue to earn the interest on your investment for the extra 5 years.
- Amount of investment: There is a minimum deposit requirement of Rs. 500 as well as a maximum deposit requirement of Rs. 1.5 lakh in the course of a financial year. You can either make instalments or the entire amount in one go.
- Rate of interest: As per the government’s policy, the interest rate for PPF accounts is adjusted every three months. The interest rate that will be applied for July to September of FY 2022-23, will be 7.1% per annum.
- Benefits of Taxation: As a tax-exempt product, PPFs enjoy the type of tax status known as EEE (exempt-exempt-exempt), which means that any interest earned, as well as the proceeds from maturity of an investment, are tax-exempt.
- Withdrawals made prematurely: After the fifth year of a PPF account, premature withdrawals from the account are permissible, provided certain conditions are met.
- PPF loan: The third fiscal year following the year when the PPF account was opened is when you can apply for a loan against it.
When and How is the PPF Interest Calculated?
It is important to note that interest on a PPF is determined by the lowest balance in the account between the fifth and last day of the month. It is calculated on the amount deposited by the fifth of each month if it is deposited before that date. You will pay interest on the balance of the PPF account if you deposit after the fifth day of each month, as opposed to the amount deposited after the fifth day.
When Should you Invest in a PPF Account to Maximize your Returns?
According to the above information, it is more likely that you will be able to maximize your returns by investing before the fifth day of each month in your PPF account. This difference is, however, very small. For those of you who wish to make a lump sum investment for the entire year, we recommend that you invest before April 5th, which is when the difference will be marginal.
What is the Frequency of Compounding of PPF Interest?
PPF accounts are compounded on an annual basis, with interest calculated each month and credited to the account at the end of the year.
Public Provident Fund Interest Calculation Formula
A = P [({(1+i) ^n}-1)/i]
where,
Maturity amount = A
The principal amount is P
Interest rate I = expected interest rate
Amount invested for N years
PPF Calculator
Using the PPF calculator online is easier and more convenient than calculating the expected PPF returns manually. All you need to do is launch an online PPF calculator, enter the deposit amount and the duration of your investment, and you’re ready to go. By using the calculator, you are able to determine your estimated maturity proceeds at the end of the investment term.
The actual corpus may differ from the estimated amount as PPF interest rates are subject to quarterly revision every three months, but knowing your estimated maturity amount can help you plan and make decisions that are in your best interest as you progress towards your long-term financial goals.
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