Under PPF regulations, interest is calculated on the lowest balance in the account between the close of the fifth day and the last day of each month. This means deposits made on or before the fifth of any month earn interest for that month, while contributions made after the fifth start earning interest only from the following month.
With June 5 approaching, the rule serves as a reminder for investors planning fresh contributions this month. However, the benefit is not limited to June and applies throughout the year.
For example, an investor depositing ₹1 lakh on June 4 will earn interest on that amount for June. If the same deposit is made on June 6, interest on the fresh contribution will begin accruing only from July, resulting in the loss of one month’s interest.
The impact may appear modest initially, but over the long 15-year tenure of a PPF account, consistent deposits before the fifth of each month can enhance overall returns through compounding.
Financial planners generally recommend making PPF contributions as early in the month as possible, particularly for investors who invest regularly or make large lump-sum deposits. Those intending to invest the maximum annual limit of ₹1.5 lakh can also benefit by contributing earlier rather than waiting until the end of the financial year.
At the current interest rate of 7.1% per annum, the timing of deposits can play a small but meaningful role in maximising tax-free returns from one of India’s most popular long-term savings schemes.
ALSO READ | What the latest NPS reforms signal for retirement savers
