Know when you should invest in PPF to maximise returns

if you make the investment at the end of the year, you will lose out in the interest for the year. (iStock)

PPF is one of the most favoured small savings schemes used by Indians to park their long-term savings. It is a preferred debt alternative as it provides guaranteed return. It is also tax-efficient compared to most of the other instruments such as bank fixed deposits (FDs) as it enjoys the exempt, exempt and exempt (EEE) tax status. It basically means that the investments made in PPF or Public Provident Fund, the interest earned as well as the accumulations are tax-free.

Currently, PPF is offering an interest of 7.1%. The government had recently revised the interest rates downwards, however, the decision was reversed after a lot of hue and cry.

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So, your PPF will continue to earn an interest rate of 7.1% for the quarter ended 30 June 2021. Interest rates on small savings schemes are revised quarterly. If you are investing in PPF, you may not need to change your decision.

However, apart from the interest rates there are certain other things that you should keep in mind if you are investing in PPF.

It is always advisable to invest in the PPF at the beginning of the year. This way you will be earning interest on the deposits for the entire year. Most of the time people make bulk investments in their PPF account at the end of the financial year in the month of March to claim deduction under Section 80C. One can claim a tax deduction of up to 1.5 lakh on investments made in the PPF account in a year. But if you make the investment at the end of the year, you will lose out in the interest for the year.

Apart from this the interest on PPF is calculated on the minimum of the monthly balance between fifth and last day of the month. For example, if your balance on PPF is 50,000 as on 1 April, and you deposit 20,000 on 6 April, interest for the month of April will be calculated on 50,000 instead of 70,000. Therefore, if you are making staggered investment on a monthly basis in PPF, it is advisable that you do it before the fifth of every month. However, maximum interest can be earned only if you deposit the sum at the beginning of the year.

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