Ways to maximize your Interest on PPF Account
The Public Provident Fund is a
very attractive investment plan. The investment in PPF provides you with lots
of benefit by securing your future along with reducing your tax liability. As
per the rules, the PPF investment for the year can not exceed Rs. 1,00,000. The
amount of investment made by you in PPF is allowed as a deduction from total
income under section 80C of the Income Tax Act. The investment in PPF, interest
on PPF and amount received on maturity of the PPF all this are tax free and so
more and more people opt for the investment in PPF.
Method of calculation of Interest
on PPF and the tips to increase the same:
The method of calculation of
interest on PPF investment is very unique. The interest rate on Investment in
PPF Account is declared by the Government every year. At present the interest
on PPF Investment is 8.7% for the Fiscal Year (2013-14). The interest on PPF investment
is compounded on annual basis.
The loophole which helps to
increase the amount of interest on PPF investment lies in the amount and date
on which interest is calculated. The mechanism of calculating interest runs by
calculating the interest on the lowest balance in the month. The interest is
calculated at the end of every month and the same is credited to the account on
annual basis at the end of the year. The days’ during which the interest is
calculated is between the end of the previous month and 5th Date of
the month preceding it. Mathematically the interest calculation can be denoted
as follows:
Lowest Balance in the PPF Account
during the month * Interest Rate @ 8.7% at present * 1/12
Now the tip to increase the PPF
account interest is that you should deposit the PPF investment amount before
the 5th date of the month. For example if you want to deposit Rs.
10,000 for 10 months in the PPF Account, than deposit Rs. 10,000 before 5th
of every month so that the interest on such amount will be available for whole
month. And in case when you want to deposit a certain amount in one go than
deposit the same before 5th of the month at starting of the year.
This will help you to earn the interest on such amount for whole year. If we
understand the same by an example, in case you have spare money and you want to
deposit Rs. 80,000 for the Financial Year 2014 – 15 in the PPF account, keep
the same ready and deposit it before 5th April, 2014 so that the
interest will be calculated for whole year on Rs. 80,000. And you may not loose
that portion of interest.
The above tip will have a
wonderful effect on interest amount of your PPF account. The effect of the same
can be understood by way of example. In case you deposit Rs. 20,000 for five
months and if you start depositing such amount in the month of April and that
too before 5th of the month than 8.7% interest on Rs. 20,000 for the
month amounts to Rs. 145 and for five such installments it amount to Rs. 725. So
if you fail to deposit the amount before 5th of the month, you may
loose Rs. 145 interest per month indirectly. So be punctual and try to deposit
the amount on or before 5th of the month.
:-)
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