Ways to maximize your Interest on PPF Account
The Public Provident Fund is a very attractive investment plan. The investment in PPF provides you with lots of benefit by securing your future along with reducing your tax liability. As per the rules, the PPF investment for the year can not exceed Rs. 1,00,000. The amount of investment made by you in PPF is allowed as a deduction from total income under section 80C of the Income Tax Act. The investment in PPF, interest on PPF and amount received on maturity of the PPF all this are tax free and so more and more people opt for the investment in PPF.
Method of calculation of Interest on PPF and the tips to increase the same:
The method of calculation of interest on PPF investment is very unique. The interest rate on Investment in PPF Account is declared by the Government every year. At present the interest on PPF Investment is 8.7% for the Fiscal Year (2013-14). The interest on PPF investment is compounded on annual basis.
The loophole which helps to increase the amount of interest on PPF investment lies in the amount and date on which interest is calculated. The mechanism of calculating interest runs by calculating the interest on the lowest balance in the month. The interest is calculated at the end of every month and the same is credited to the account on annual basis at the end of the year. The days’ during which the interest is calculated is between the end of the previous month and 5th Date of the month preceding it. Mathematically the interest calculation can be denoted as follows:
Lowest Balance in the PPF Account during the month * Interest Rate @ 8.7% at present * 1/12
Now the tip to increase the PPF account interest is that you should deposit the PPF investment amount before the 5th date of the month. For example if you want to deposit Rs. 10,000 for 10 months in the PPF Account, than deposit Rs. 10,000 before 5thof every month so that the interest on such amount will be available for whole month. And in case when you want to deposit a certain amount in one go than deposit the same before 5th of the month at starting of the year. This will help you to earn the interest on such amount for whole year. If we understand the same by an example, in case you have spare money and you want to deposit Rs. 80,000 for the Financial Year 2014 – 15 in the PPF account, keep the same ready and deposit it before 5th April, 2014 so that the interest will be calculated for whole year on Rs. 80,000. And you may not loose that portion of interest.
The above tip will have a wonderful effect on interest amount of your PPF account. The effect of the same can be understood by way of example. In case you deposit Rs. 20,000 for five months and if you start depositing such amount in the month of April and that too before 5th of the month than 8.7% interest on Rs. 20,000 for the month amounts to Rs. 145 and for five such installments it amount to Rs. 725. So if you fail to deposit the amount before 5th of the month, you may loose Rs. 145 interest per month indirectly. So be punctual and try to deposit the amount on or before 5th of the month.