What is PPF?
The full name of Public Provident Fund is Public Provident Fund. Public Provident Fund is a government-backed saving plan that helps individuals create long-term wealth by investing small amounts on a regular basis. The plan combines the safety of capital with the assurance of returns over a long period of time.
Features of Public Provident Fund
- Tenure: PPF accounts have a long-term tenure of 15 years. However, one or more blocks of 5 years can be added to the account within a year before the account reaches its maturity date. The advantage is that you continue to earn interest on your investment if you request an extension within the year.
- Investment amount: As per the requirements of the scheme, a minimum deposit requirement is Rs. 500 and a maximum deposit requirement of Rs. 1.5 lakh is required in a financial year. You can either make payment in installments or pay in one lump sum.
- Interest rate: It is the government’s policy to periodically revise the interest rate on the PPF account every quarter, this time the rate for July to September of FY 2022-23, which is 7.1% per annum, will be revised as follows.
- Tax benefits: There is no tax on PPFs, as they enjoy an EEE tax exemption status, which means that at every stage of investment – deposit, interest, and maturity proceeds – these funds are tax exempt.
- Premature withdrawals: PPF accounts are permitted to make premature withdrawals after the fifth year of the account, but there are some conditions that must be met.
- Loan against a PPF: Loans against PPFs are available in the third fiscal year after the account is opened.
How and when is the PPF interest calculated?
When you deposit before the fifth day of each month, interest is calculated on the lowest balance in the PPF account. Interest on the balance is calculated for that month if you deposit before the fifth day. Interest is calculated on the balance of your PPF account if you deposit after the fifth day.
Investing in a PPF account at the right time will maximize your returns.
In accordance with the above information, if you invest in your PPF before the fifth day of each month, you are more likely to maximize your returns. However, the difference is only a few hundred rupees. In case you want to make a lump sum investment for the entire financial year, consider investing by April 5th, which is the deadline for making a lump sum investment.
What is the compounding frequency of PPF interest?
Public Provident Funds credit interest to the account at the end of the year. Interest is compounded annually.
Public Provident Fund interest calculation formula
A = P [({(1+i) ^n}-1)/i]
where,
A = amount of maturity
P = amount of the principal
I = estimated interest rate
N = Duration of investment
PPF calculator
It can be difficult to calculate the expected PPF returns if you don’t have the tools to do so. Therefore, you can use the PPF calculator online for ease and convenience. The calculator allows you to estimate the maturity proceeds that you will receive at the end of the tenure of your investment by simply entering the deposit amount and investment tenure.
PPF interest rates are subject to quarterly revision, so the actual corpus may differ from the estimated amount. However, you can plan your long-term finances and make informed decisions to meet your goals by knowing an approximate maturity amount.
FAQs
What is a PPF account?
PPF accounts are government-run savings schemes offering individuals stable and guaranteed returns as well as long-term wealth creation and attractive tax benefits. You can use the proceeds to meet a number of big-ticket financial goals, including higher education expenses for your children, wedding expenses, medical emergencies, etc., as it helps you build a sizable corpus at the end of your long tenure.
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