Public Provident Fund is the government-backed tax saving investment scheme that pools your funds for the long term. Aimed at mobilizing the small savings, PPF is one of the ubiquitous choices for long term investment combined with the tax benefits.
An Overview of Public Provident Funds
1.Public Provident Funds are an EEE tax savings scheme with tax exemption on the principal amount invested, interest earned on PPF, and the total amount received on the maturity of the PPF. Under sec 80 C of the Income-tax Act, you can earn a PPF interest rate benefit up to Rs. 1.5 Lakhs on your investments.
2.The lock-in period of investment is 15 years and you can extend the investment within 1 year of maturity period for 5 years. The maturity period is calculated from the end of the financial year in which a deposit was made.
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3.You need to deposit a minimum amount of Rs. 500 in your PPF account. The maximum investment you can accumulate in your PPF account is 1.5 Lakhs per financial year.
4.The interest rate on PPF is calculated annually and determined by the government. The current PPF Interest rate stands at 7.90%, w.e.f. 1st January, 2020.
Calculation of PPF Interest Rate
The calculation of PPF Interest rates is done on the minimum balance before the 5th of every month. However, the interest calculated is credited annually at the end of the financial year.
Consider this example to understand better how the PPF Interest Rate is calculated.
If you have invested Rs. 10000 in your PPF account before 5th April. The rate of interest is 7.9%. The return on your investment would be as follow:
| Year | Opening Balance | Principal Amount | Interest Earned | Closing Balance |
| 1 | 0 | 10,000 | 790 | 10,790 |
| 2 | 10,790 | 10,000 | 1642 | 22,432 |
| 3. | 22,432 | 10,000 | 2562 | 34,994 |
| 4. | 34994 | 10,000 | 3555 | 48,549 |
| 5. | 48,549 | 10,000 | 4625 | 63,174 |
Tips to earn maximum interest from PPF:
Public Provident Fund is a long-term investment scheme, and investing a small amount of money can help you to maximize the returns on your investments’. Here are some tips regarding when and how to invest your funds in the PPF account.
1.When to invest: If you make monthly investments in your PPF account, the best time to make contributions to your PPF account is before the 5th of every month. If you invest your funds before the 5th, you can earn maximum returns as the interest is calculated monthly on the minimum balance before the 5th of every month.
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2.How to invest: If you want to maximize the returns on your investments, the better idea would be to make contributions in your PPF account as lump-sum amounts at the beginning of the financial year. As interest is calculated from April to March every year and if you make a lump sum investment before 5th April you can earn interest for the entire year.
3.Mode of investment: There are various banks and lending institutions that offer the facility of depositing the funds online directly through the Internet Banking facility. If you make monthly deposits by cash or other modes by visiting the bank, it is likely that you may miss the investments regularly, thus lessening your chance of earning maximum interests on your investment.
4.Using an online PPF calculator: PPF calculator is a financial tool that can help you to give an overview of the interest rates and the return on your investment. You can use an online calculator to get a more vibrant picture of earnings on your finances.
Conclusion:
Public Provident Fund is one of the safest tax-cum saving investment schemes for the long term. When it comes to getting a return on your investment, a small amount of funds invested can bring a high return in your PPF account. You can earn the maximum interest on your investments if you strategize your investment efficiently at the best time and with the best mode of investment.
