DT Personal Finance: Do not stress out on parking Rs 1.5 lakh in PPF before April 5

CHENNAI: AS the financial year draws close, the PPF aficionados get into overdrive to try and invest the full Rs 1.5 lakh (upper limit in a FY) in their PPF accounts between the 1st and the 5th April.

If you aren’t aware of the reason, take my cue - the interest on the PPF account balance is calculated on a monthly basis. But for that, it considers the lowest monthly balance in your PPF account between the 5th and the last day of the month. So, if you invest before the 5th of a month, the contribution will be considered for that particular month’s interest as well.

And this is the reason why people want to invest the entire Rs 1.5 lakh (allowed) before the 5th of April itself.

Let’s take an example to understand this better.

Suppose on 1st April 2024, your PPF account has Rs 5 lakh.

You want to invest Rs 1.5 lakh before 5th April. Say on 2nd April 2024. So, your balance on the 3rd of April will be Rs 5 lakh + Rs 1.5 lakh = Rs 6.5 lakh. As stated in PPF rules, in this case, the minimum balance between the 5th and 30th of April 2024 would then be Rs 6.5 lakh. So, the monthly interest will be calculated on this minimum balance amount, as (7.1%/12) * Rs 6.5 lakh = approx. Rs 3,846.

In an alternate scenario, for some reason you are unable to invest the amount before the 5th of April. Instead, say you deposited Rs 1.5 lakh on 12th April 2024. So now if you notice, the account balance for your PPF account is Rs 5 lakh between 1st and 11th April. You deposited Rs 1.5 lakh on 12th April and so from 12th -30th April, your balance is Rs 6.5 lakh. As per the rules, in this case, the minimum balance between the 5th and 30th of April 2024 would then be Rs 5 lakh only (specifically on dates 5-11th April). So, the monthly interest will be calculated on this minimum balance amount, as (7.1%/12) * Rs 5 lakh = approx. Rs 2,958.

So, there is definitely a small difference in the interest earned for the month of April (Rs 3,846-Rs 2,958) in this case. For the rest of the months (from May 2024 to March 2025), the calculation for both will remain the same as the account balance stays put at Rs 6.5 lakh.

As many of you may agree, the difference between the two isn’t huge. Of course, it is there and if you can invest the full amount in your PPF before 5th April, then definitely it helps maximise the interest earned. But if you can’t do that, it is fine. Note – The interest amount will vary based on the starting PPF balance amount assumed in the examples.

People give unnecessary importance to this small technicality and many times, ignore the bigger issues in their personal finance.

Just investing Rs 1.5 lakh in PPF each year will not be enough to achieve all your financial goals. So those who love doing that, should also assess whether they are investing sufficiently for all goals and that too in the right asset classes that help them beat inflation in the long run or not.

PPF is a solid debt product, no doubt about it. But it should be complemented with the proper amount being invested in equity funds that have the potential to deliver 10-12% average returns in the long term.

So don’t worry too much about investing the entire Rs 1.5 lakh in PPF before April 5th. If you can, then great. Else also, its fine as long as you are investing the correct (required) amount regularly across different assets during the full year.