Personal Finance Insight #29
Timing Matters in PPF
Many investors focus on how much to invest in PPF, but few pay attention to when they invest.
PPF interest is calculated on the lowest balance between the 5th and the last day of each month. Therefore, if you deposit money on or before the 5th, it earns interest for that month. If you deposit on the 6th, you miss that month’s interest.
Assuming:
Existing PPF balance on 1st June =₹3,00,000
New deposit = ₹50,000
PPF interest rate @7.1% p.a.
Scenario 1 :
Deposit on 3rd June.
Balance between 5th June and 30th June=₹3,50,000.
Interest for June: ₹3,50,000×7.1%÷12= approximately ₹2071.
Scenario 2 :
Deposit on 6th June.
Balance on 5th June = ₹3,00,000
Since PPF considers the lowest balance between the 5th and month-end, the ₹50,000 deposited on 6th does not earn interest for June.
Interest for June : ₹3,00,000×7.1%÷12=approximately ₹1775
Difference: ₹2071-₹1775=₹296
So, by depositing ₹50,000 on 3rd June instead of 6th June, you earn about ₹296 extra interest for June alone.
It may seem small, but if you consistently invest before the 5th of every month for many years, the additional interest itself starts earning interest, thanks to compounding.
That’s Why Timing Matters in PPF.
