How to get maximum interest in PPF(Public Provident Fund)?
For the past couple of weeks, I have been asked a question by some of the readers about how to get maximum interest in PPF account. While this topic could be small, I thought of writing an article so that it would be useful for the readers. Can we get maximum and highest interest in PPF account, if so, how?
Before I jump on how to earn maximum interest in PPF, I would provide some basic information about Public Provident Fund (PPF). In case you are already familiar with the features of PPF, you can skip this section.
What is PPF and what are its features?
- PPF is a Public Provident fund, which is a good retirement option that can be used by an investor. This is alternative to VPF and EPF which are restricted only to employees. PPF on the other hand can be invested by any one for tax saving or for retirement saving purpose. Below are the features of the PPF account.
- Investment up to Rs 1,50,000 per annum qualifies for IT Rebate under section 80 C of Income Tax Act (FY 2014-15 onwards).
- Current interest rates are 8.70% per annum.
- Loan facility in PPF account is available from 3rd financial year up to a 5th financial year. The rate of interest charged on loan shall be 2% per annum above interest paid.
- Withdrawal permitted from 6th financial year.
- Non-Resident Indians (NRIs) are not eligible.
- An individual cannot invest on behalf of a HUF (Hindu Undivided Family) or Association of persons.
- Minimum investment is Rs 500 and maximum is Rs 150,000 (effective Financial 2014-15 onwards)
- Best suitable for those who want to get tax exemption u/s 80C up to Rs 1.5 Lakh as well as those who want to accumulate funds for retirement purpose thereby earning safe and highest returns.
How to get maximum interest in PPF?
Now, coming to the main point, there a few ways on how to earn maximum interest in PPF account.
a) Interest paid on lowest balance between 5th and 30th/31st of the month: You should first know how interest in PPF is computed. Interest is computed on the least balance between 5th to 30th / 31st of the month. Means if you are depositing every month after 5th, your deposit would not earn interest for that month. Many of us make regular deposits in PPF account like Mutual fund SIP. However, if you know this tip, you can earn maximum interest in PPF. E.g. if you have deposited Rs 10,000 on 6th or after this date, you would be missing Rs 75 interest for that month. Just imagine that if you are making 10 installments in a year after this cut-off date you would be missing approx Rs 750 interest for that year.
b) Invest in lumpsum before 5th April: We all know that we can deposit up to Rs 1.5 Lakh at any time of the financial year to claim tax benefit u/s 80C. In such case instead of depositing every month or during year end, try investing at the beginning of the year by 5th April of that year. This would help you to earn maximum interest for the financial year along with benefits from income tax.
c) Use online system for transfer instead of direct deposit: I agree that many of us would think that going to the bank before 5th and depositing would be painful job. You can open a PPF account in SBI or any other bank which is offering PPF account. Instead of cash or cheque deposit, you can do a direct online transfer from your SB account to PPF account. This is one way of ensuring that you get maximum interest by depositing before the cut-off date.
Conclusion: While it is important to invest in safe and good investment option like PPF, I feel it is equally important to keep a small discipline where you can gain maximum interest on your PPF account.
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How to get maximum interest in PPF