Deposit money before the 5th of each month

Not many individuals know, that the interest on the Public Provident Fund (PPF) is calculated on lowest balances in account between 5th and last day of the month.

In simple terms, what this means is that if you deposit the amount after the 5th of the month, you will lose interest for that month.

The ideal way to get returns from PPF

The best way to get maximum returns is to deposit the amount on April 1. In fact, we suggest that you deposit the entire amount in lump sum.

Of course, if you do not have lump sum, then as suggested you should please deposit the amount before the 5th of every month.

We suggest lumpsum on April 1, because PPF gives you a very high interest rate of 8.1 per cent, as against 7.5 per cent in government deposits.

How much do you lose?

There are many individuals who ask: how much would I actually lose, if I do not deposit the amount before the 5th of each month?

If you work on the assumption that you would invest the entire amount that is permitted at Rs 1.5 lakhs, over 15 years by not depositing before 5th, you could end-up losing around Rs 31,000.

The biggest draw is interest rates

If you have never invested in the PPF and are in your 20s and 30s, you simply should. The Public Provident Fund almost always gives you higher interest rates than bank deposits. SBI Deposits offer you an interest rate of 7.50 per cent at best. The PPF currently, offers you an interest rate of 8.10. Though the government reviews interest rate on small savings every quarter, we do not see these interest rates falling below that of Bank deposit rates.

Dual tax benefits

Very few instruments in this country, offer you two different types of tax benefits. The PPF allows you tax benefit under Sec 80C of the Income Tax Act and the interest income is also free from tax. All along a win-win situation.

At the moment the maximum amount that you can place in the PFF is Rs 1.5 lakhs. We suggest that you place the entire amount of Rs 1.5 lakhs, because of the tax benefits and the high interest rates.

Building money for your retirment

It is also important to remember that with a lock-in period and a tenure of 15-years, you are building a corpus for yourself. 

So, go ahead and invest in what is one of the best fixed interest yielding products in the country.

High on safety

This is also a government owned scheme and hence is one of the safest investment schemes in the country. Go for it, if you wish to make a decent savings.