PPF: A lesser-known hack that could fetch you more than 7.1% return

The prevailing interest rate for public provident fund (PPF) is currently 7.1%, but there’s a way to earn even more. Deposits made before April 5 can earn you a higher interest rate.

Therefore, investors planning to contribute to PPF for the financial year 2024-25 should aim to make deposits before April 5 to maximise returns.

How will you earn more on PPF deposits?

Here’s how this works – PPF interest is calculated on the lowest balance between the 5th of every month and the end of each month, according to the PPF scheme.

Hence, investors who make lump sum deposits in the PPF account before April 5 will earn higher returns. This would especially benefit those who make a single annual lump sum deposit.

Meanwhile, for people making monthly contributions, deposits should be made before the 5th of every month to avoid losing out on interest.

The PPF account interest is calculated monthly but credited to the account at the end of each financial year.

Here is an illustration to help you understand this concept.

If you invest ₹1.5 lakh in your PPF account before April 5, 2025, the full amount will be considered for interest calculation that month. At the current rate of 7.1%, your annual interest earnings would be ₹10,650 ( ₹1,50,000 * 7.1%).

This translates to a monthly interest of ₹887.5 ( ₹10,650/12).

How much will you earn if you deposit after April 5?

Meanwhile, if you make the same ₹1.5 lakh deposit after April 5, the interest earned for that year drops to — ₹9,762.5 ((1,50,000 * 7.1%)— ₹887.5) less than if you had invested earlier.

This amount becomes more significant when the interest amount is added over several years.

Additionally, the closing PPF amount in a year is added to the opening amount for the next year. This income gets compounded, and you would receive a lump sum upon maturity. Hence, investing in PPF before the 5th of every month will also add to the maturity corpus.

How to earn more tax-exempt income?

It must be noted that PPF contributions fall under the Exempt-Exempt-Exempt (EEE) category, which means that all the deposits made under this are deductible under Section 80C of the Income Tax Act.

The EEE category is when your investment, the interest earned on it and income generated at the time of withdrawal are not taxable.

Hence, by making deposits before the 5th of every month, you not only increase your returns but also earn more tax-exempt income.

About PPF

PPF is a small savings scheme introduced by the Government of India that offers assured returns to investors, making it a top choice among conservative investors.

People can invest between ₹500 and ₹1. 5 lakh either in instalments or in a lump amount. However, if the minimum deposit of ₹500 is not made in a financial year, the PPF account will be discontinued.

PPF has a lock-in period of 15 years, while partial withdrawals can be made from the fifth year onwards.

Its government backing adds credibility, making it a secure long-term investment option.