Amongst many saving and investment schemes, the Public Provident Fund (PPF) is one of the most popular tax-saving schemes for people. It is also a very good option for retirement planning.
However, there is one thing that can decide if you get the maximum out of your Public Provident Fund account and that is the time of investing the amount to your account. Public Provident Fund is a 15-year scheme, and the same can be extended within one year of maturity for indefinitely in multiples of five years.
For subscribers who invest before or on the 5th of every month will get the maximum return as compared to those who invest after the fifth of the same month.
Here is why
The interest on the balance in the subscriber’s Public Provident Fund account is compounded annually and is credited at the end of the year. The maximum the subscribers can deposit to their account is Rs 1.5 lakh every year for 15 years.
Let us assume the interest rate applied to investment is 8.7 per cent. It means that by the time a Public Provident Fund account matures, a subscriber will have Rs 45,04,384. This return is for investors who have deposited money on or before fifth of every month. As for those who invest after fifth of the month after 15 years will get Rs 44,73,197.
The difference between the two is of Rs 31,187. Currently, the interest rate on PPF set by the government is 7.6 per cent.
Features of PPF:
1. PPF deposits can be made in lump-sum or in 12 instalments depending on what the user wants to choose.
2. A PPF account can be opened by cheque or cash.
3. A subscriber can open another PPF account in the name of minors, but subject to the maximum investment limit by adding balance in all accounts.
4. Premature closure of a PPF account is not allowed before 15 years.
5. Interest on PPF is completely tax-free.