When it comes to the Public Provident Fund (PPF), your timing of investments can make a big difference when it comes to the interest earned. There is a lesser-known, excellent trick that will make you earn an extra month's interest—by investing early before a certain deadline. By investing your PPF contribution before the 5th day of the corresponding month, you can earn interest for the month even though your funds have been in your account for only a few days.
How PPF interest is calculated
PPF interest is calculated on the lowest balance between the 5th and end of each month. What that means is if you deposit after the 5th, your money will not accrue any interest for that particular month. For example, if you invest ₹1.5 lakh on July 6 instead of July 4, you would miss one month's interest on the entire amount, and this loss could add up significantly in the course of time, especially for those investing the entire year's limit.
Why July is the best month to invest
If you wish to deposit the maximum permissible sum of ₹1.5 lakh in your PPF, July is a good month for investment. If you invest by 5th July, you receive interest for the remaining eight months of the financial year. If you invest on any other day, say, 20th July, you would be losing interest for this month, and the interest calculation would start from August only.
Yearly lump sum or monthly deposits
You can choose to invest either in a lump sum or through monthly deposits into PPF. If you wish to pursue the monthly route, make sure that the deposit is done before the 5th day of each month. You can automate the same through standing instructions from your bank account. If you have the money to spend, you should spend it in April, till the 5th, to earn interest throughout the financial year. But even if it is July, it is not too late to gain—just do it before the 5th of the month.
The bottom line
This simple timing device costs you no extra money—it merely requires you to adjust when you invest your money. If you plan to invest in your PPF this fiscal year and have not done so yet, attempt to invest by the 5th of the month so you receive maximum returns as well as the benefit of compounding over the lock-in period of 15 years.
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