The interest earned on PPF is not fixed but benchmarked to Government securities. The government declares the interest rate payable on PPF every financial year. Generally government declares the PPF interest rate, for the next financial year, in the last week of March.
PPF offers 25 basis points higher than the yield of 10-year government bonds. Thus the rate of interest earned on PPF may come down if Govt. bond yield comes down and may go up in case the yield goes up.
For fiscal year 2015-16 government has announced interest rate of 8.70 per cent. which is same as the last fiscal year.
Update: Earlier the interest rates for the small saving schemes like PPF, SSY, NSC used to be declared annually once. From FY 2016 - 2017 the rate of interest will be reviewed every three months so interest rate on small saving schemes will be fixed on quarterly basis and may change every quarter.
Interest Rates for PPF
April 1, 2016 - June 30, 2016 : 8.10% July 1, 2016 - September 30, 2016 : 8.10% October 1, 2016 - December 31, 2016 : 8.00% January 1, 2017 - March 31, 2017 : 8.00% April 1, 2017 - June 30, 2017 : 7.90% July 1, 2017 - September 30, 2017 : 7.80% October 1, 2017 - December 31, 2017 : 7.80% January 1, 2018 - March 31, 2018 : 7.60%
One of the biggest point going in the favour of PPF is that the interest earned on the scheme is completely tax free.
PPF interest rate calculation
It is very important to know how the interest on the PPF is calculated so that the rate of return on that investment can be maximized by investing amount at the proper time.
The interest on balance in your PPF account is compounded annually and is credited at the end of the year. But the point to remember is that the interest calculation is done every month which means the interest is calculated on lowest balances in account between 5th and last day of the month. So if you don't deposit on or before the 5th of a month, you don't earn interest for that month.
To make it a little technical; in case of monthly interest calculation, interest bearing balance method is used. Formula for the same is
Interest = Total Amount x 1/12 x Rate/100Where total amount is the amount in the PPF account at any given month end.
As Example -If total amount in the PPF account at the end of any given month is Rs. 1,00,000 then interest for that month would be (Considering the interest as 8.7%).
Interest = 100000 x (1/12 x 8.7/100)
= 100000 x 0.00725
= 725
Going by that method if we take three scenarios -
- Rs. 60,000 deposited between Apr 1st and Apr 05.
- Rs. 5,000 deposited every month between the 1st and 5th of that particular month.
- Rs. 5,000 deposited every month after the 5th of that particular month.
Considering the interest as 8.7% the interest earned at the year end for these 3 scenarios would be.
- Rs. 5,220 when Rs. 60,000 deposited between Apr 1st and Apr 05.
- Around Rs. 2850 when Rs. 5,000 deposited every month between the 1st and 5th of that particular month.
- Around Rs. 2400 when Rs. 5,000 deposited every month after the 5th of that particular month.
It's easy to see that lump sum investment at the start of the year (between Apr 1st and Apr 5th) will fetch the highest return.
Points to note -
- Interest rate for PPF is not fixed and subject to change every quarter from FY 2016 - 2017.
- Minimum deposit of Rs. 500 has to be done in a fiscal year otherwise PPF account will be deactivated.
- Ideal scenario would be to deposit 1,50,000 between Apr 1st and Apr 5th in order to fetch maximum interest. A nice article for the best time to investment can be seen here - http://www.ppfaccount.in/ppf-investment-period.html
- Make sure to deposit between 1st and 5th of the month in order to get interest for that particular month.
- PPF is EEE investment which means PPF is exempted from tax across all three stages of investment.
That's all for this topic Public Provident Fund (PPF) Interest Rate/Interest Rate Calculation. If you have any doubt or any suggestions to make please drop a comment. Thanks!
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My PPF acount matured on 31 March 2015...I don't intend to extend the same.
ReplyDeleteI want to withdraw it on 3 Jan 2016.
Will I get interest till 31 Dec 2015? In other words do I loose interest from 1 April 2015 to 31 Dec 2016?
My PPF acount matured on 31 March 2015...I don't intend to extend the same.
ReplyDeleteI want to withdraw it on 3 Jan 2016.
Will I get interest till 31 Dec 2015? In other words do I loose interest from 1 April 2015 to 31 Dec 2016?
How to connect with you ? We have made a PPF calculator which I would like you to try.
ReplyDeleteIn regular continuing acccount this mode of calculation 4 interest may not be incorrect.However in case where DEPOSITOR is withdrawing total proceeds,interest up to the date of deposit ought to be paid,irrespective of 5th of month /whole month.THIS FACT IS WELL EUNCIATED IN ppf ruleas THE ACCOUNT HOLDER CAN RETAIN THE ACCOUNT AFTER MATURITY FOR ANY PERIOD WITHOUT MAKING FURTHER DEPOSITS THE BALANCE OF ACCOUNT WILL CONTINUE TO EARN INTEREST AT NORMAL RATES AS ADMISSIBLE IN PPF ACCOUNT TILL THE ACCOUNT IS CLOSED,meaning thereby that say if withdrawal is made on 24th april ,depositor will be given interest upto 24th,.However most of desk person remit interest upto 31 march &thus deprive depositor of interest for period from 1 /4/ to 24/4 .This practice is unjustified depriving depositorof his entitled interest THIS CORRECTION IS NEEDED
ReplyDelete