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Which is the best month to invest in PPF to get the highest interest?

Posted on 06 Sep 2023
Author: Sayan Sircar

Tags: Choosing Investments

4 mins read
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This article explains how PPF interest calculation works so that you can invest in the best month to get the maximum interest.

Which is the best month to invest in PPF to get the highest interest?

📚 Topics covered:

How is interest calculated for PPF?
How much interest do you get based on the month when you invest in PPF?
Should you invest ₹1.5 lakhs in PPF by 5th April?

How is interest calculated for PPF?

The Ministry of Finance declares PPF rates every quarter. That interest rate is used to calculate the applicable interest every month based on the balance which is the minimum of that between the 5th to the end of every month. This the reason you should invest before 5th of the current month instead of after. The interest is credited on 31st March. If you have 10000 in the account on 5th May, and the rate of interest is 7%, then the new balance is 10000 * (1+7%/12) = 10058 as calculated after 31st May. If you invest 1000 on 15th May and nothing else after that then this new 1000 is not considered in the May balance but will be included in the June balance. If the rate changes to 7.1% on 1st Jul (after Q2 end), then from 5th Jul onwards, 7.1% is the rate used to calculate the new interest. The total interest thus calculated is credited on 31st Mar next year.

Since the amount of interest you get depends

on the date of investment. If you are investing before 5th of the month, you get more interest than compared to investing after the 5th
the earlier you invest, the more interest you get

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How much interest do you get based on the month when you invest in PPF?

Based on the calclation method discussed above, if you invest by the date of

5-Jan-2023, you will get interest for the month of Jan 2023 and onwards
5-Feb-2023, you will get interest for the month of Feb 2023 and onwards
5-Mar-2023, you will get interest for the month of Mar 2023 and onwards
5-Apr-2023, you will get interest for the month of Apr 2023 and onwards
5-May-2023, you will get interest for the month of May 2023 and onwards
5-Jun-2023, you will get interest for the month of Jun 2023 and onwards
5-Jul-2023, you will get interest for the month of Jul 2023 and onwards
5-Aug-2023, you will get interest for the month of Aug 2023 and onwards
5-Sep-2023, you will get interest for the month of Sep 2023 and onwards
5-Oct-2023, you will get interest for the month of Oct 2023 and onwards
5-Nov-2023, you will get interest for the month of Nov 2023 and onwards
5-Dec-2023, you will get interest for the month of Dec 2023 and onwards

On a related note, if you are investing in PPF for saving tax under Section 80C, note that if you invest in PPF

before 31st March 2023, you will get tax benefit for this financial year
after 31st March 2023, you will get tax benefit for the next financial year

Should you invest ₹1.5 lakhs in PPF by 5th April?

If you follow the discussion above, the best month is therefore at the beginning of the financial year. Therefore April is the best month to invest in PPF since that will always give the highest interest.

However, over a 15-year period, the difference between investing ₹1.5 lakhs/year and investing ₹12,500/month is only ₹40.68 lakhs minus ₹39.45 lakhs or just ₹1.23 lakhs. You, therefore, make very little less money by breaking the investment equally over 12 months as we have shown here: How to get the most interest when investing in PPF?.

We have already shown that PPF has not beaten risky assets like equity in less than 10% of cases since 1979: The latest result of PPF vs. SENSEX.

Therefore, you are significantly hurting your portfolio by investing ₹1.5 lakhs in PPF by 5th April. Instead, invest no more than ₹12,500 and invest the rest in risky assets like equity as per your long-term goals like retirement and children’s education.

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