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Public Provident Fund (PPF) Interest Rate

How Is PPF Interest Rate Better Than Other Investments?

Public Provident Fund (PPF) is a tax-saving investment option initiated by the government and used by Indian citizens. PPF was introduced by the National Savings Institute of the Ministry of Finance in 1986 to encourage savings in the setup of investment and the advantage of return on it. Public Provident Fund can also be known as a savings cum tax saving investment tool, which allows a person to make a financial buffer in the long-term while saving on annual taxes. 

Previously, PPF interest rates were maintained higher than the popular Fixed Deposit rates provided by Banks to promote savings among Indian families for their long-term investments. The current PPF interest rate for October-December FY 2022-23 has been kept at 7.1%.

PPF Interest Rate

The PPF interest rate is fixed by the ministry of finance every year and is credited on 31st March each year. The PPF interest is estimated by the lowest balance in the account between the end of the fifth and the last day of every month.

The current PPF interest rate as of now is 7.10% which is compounded annually. Previously, the interest rate was 7.10% for July - September 2021, the current one. 

How to Calculate PPF Interest Rate?

The PPF account holder calculates the PPF account interest rate on the account's minimum balance between the 5th to the last day of each month. If one likes to deposit a larger amount for any period of the year, one should provide that they invest on or before the 5th of a certain month to get the benefit of interest on the whole month.

Calculation Formula For PPF

The formula given below is used to compute the PPF account amount:

FV = P [({(1 + i ) ^n} – 1) / i ]

Here are the full forms:

FV = Future Value (The amount to be obtained after maturity)

P = Annual instalments by the account holder

i = Periodic rate of interest

n = Total number of years

Benefits of Using the PPF Interest Rate Calculator

PPF interest rate calculator is a simple, easy-to-use online tool. A PPF calculator calculates interest accumulated, maturity value for a furnished amount invested and investment period.

Investors can use an online PPF interest calculator simply using the amount invested and the period of investment. The PPF calculator will show the total amount made at the end of the investment period.

It is crucial to know the expected maturity amount in advance. It allows an investor to make the most reasonable judgment and pick between options to PPF which will fit their financial pursuits.

The benefits of utilising an online PPF calculator are given below:

  1.  An online Public Provident Fund interest rate calculator gives an investor analysis of how much interest can be gained according to the given principal amount.
  2. It enables an investor to determine the investment portfolio for how long the investment can be maintained to accomplish the investment objective.
  3. An online PPF calculator offers a plan of investment in advance. It assists in scheduling the loan that can be used, the amount to be invested yearly, and the sum that can be withdrawn.

Why Does PPF Compound Interest Yearly?

The Public Provident Fund scheme strives to promote small savings among citizens. Introduced by the National Savings Institute of the Ministry of Finance, it is a long term-savings-cum-tax-saving tool. 

The Public Provident Fund comes under the exempt-exempt-exempt tax classification under the Income Tax Act. Everything from the invested amount and earned interest to the maturity amount all are exempt from tax.

The PPF interest is compounded yearly. The PPF interest is computed monthly and paid at the end of the year. The interest rate of PPF is revised quarterly by the Ministry of Finance, Government of India, from 1st April 2016. The banks provide PPF accounts at the interest rate fixed by the GOI.

The PPF account interest is estimated and credited to the amount balance in the investor's account. Despite the government's constant efforts over the past few years, the earnings from interest are seeing a downtrend.

Benefits of Investing in the PPF Scheme

Here are some advantages why investors should invest in the PPF scheme.

  1. Based on historical records, the interest rate mostly ranges between 7%-8%. This rate is higher than the savings account interest and a little higher than FDs interest.
  2. The tax advantages are a prevalent aspect for an investor considering investing in PPF. Under section 80C, the principal amount is allowed as a deduction of up to INR 1.5 lakh. The maturity amount and the interest earned are also exempt from tax. It drives the whole investment for the EEE category's principal, interest, and maturity amounts.
  3. PPF investments are supported and operated by the Government of India. This investment is more secure than other alternatives like an FD, savings account, ELSS, etc.
  4. Investors can opt for this alternative because the PPF scheme is completely managed by the Government of India and has safer returns than a savings bank account and FDs. Investment in FDs and bank account balances have insured a maximum of up to INR 5 lakhs by DICGC.
  5. It is easy to get a loan against the PPF account from the 3rd to the 6th year after opening the account. If necessary, an investor can also take out a partial withdrawal from the account from the 7th financial year after the year the account is opened.
  6. PPF permits a custodian of a minor or unsound child to open a PPF account on their behalf. It is a suitable choice for them to ensure their safe future.
  7. In the event of insolvency, the PPF account balance does not need to be attached to the liabilities.
  8. Hence, PPF investment can act as a last resort for the investor to provide a future shield.

Tax Advantages on the PPF Interest

Falling under the EEE tax category, PPF serves as the best option for tax benefits. Any savings made under a PPF scheme are tax exempted under Section 80C of the Income Tax Act.

Also, the total earned amount through the PPF interest rate is thoroughly exempted from tax at the withdrawal time. All amounts made to the PPF account can be considered tax-exempt up to INR 1.5 lakhs under Section 80C of the Income Tax Act.

Unlike a fixed bank account, a PPF account cannot be closed before its maturity period completion. However, the amount can be transferred between different accounts but can not be closed before the maturity period. 

One condition for closing a PPF account prematurely is the occurrence of the death or demise of the account holder. The nominee registered in the file of the account holder can select whether or not to close the PPF before the due date or let it achieve its maturity time.

Is Investing in a PPF Scheme a Good Choice?

If you are looking for a safe and secure alternative backed by the government, it is an excellent choice to consider the PPF scheme. PPF scheme has several benefits carries with it. Investors can opt for this scheme to secure retirement, long-term investment plan, end-to-end tax benefit, and risk-free option without market fluctuations.

With a lock-in period of 15 years, PPF allows a partial withdrawal choice and loan facility. It guarantees an investor's liquidity in a condition of emergency. In PPF investment, the risk factor associated is low.

The perfect time to invest to earn optimum returns is on or before the 5th day of the month. Today, it is very easy to open a PPF account online or offline at any nationalised bank, private bank, post office, and branch. 

However, the PPF scheme is not the only investment option if saving tax is the main purpose. Investors can go for alternatives like ELSS and NPS if they are young and need a way to save tax. 

What Is the Process of Taking a Loan on PPF?

Listed below are the steps to take a loan on PPF.

  1. An investor can get a loan against the balance in a PPF account. An investor can avail of a loan from the 3rd financial year till the end of the 6th financial year.
  2. The loan amount cannot surpass 25% of the deposit at the close of 2 years immediately preceding the financial year in which the loan is being received. 
  3. The account holder must pay all the dues of previous loans before applying for a new one. In one financial year, the account holder can apply for only one loan, no matter if the previous loan is fully paid.
  4. The duration of the repayment of the loan is within 36 months. The account holder has to submit Form D as an application for a loan. The loan interest rate will be 2% and above the prevalent PPF interest rate.

What is the Process of Withdrawing Money from PPF?

The following are the steps to withdraw money from PPF:

  • An account holder can apply for partial withdrawal from their PPF account annually, initiating from the 7th financial year.
  • At the end of the 4th financial year immediately preceding the withdrawal year, the amount allowed for withdrawal is up to 50% of the total deposit. Or total balance at the end of the year immediately preceding the withdrawal year, whichever is low.
  •  Public Provident Fund interest rate and withdrawal are exempted from tax. An account holder can stay invested even without making any additional deposits following the end of 15 years of a PPF account. The current balance in the account will keep earning interest. During this elongated period, an account holder can take out any sum once annually.
  • An account holder can prefer to stay invested and make more deposits after 15 years. The account can be advanced in blocks of 5 years.
  • During this advanced block of 5 years, an account holder can withdraw up to 60% of the account balance at the start of each block.

Advantages of PPF Over Other Investments

Here are the advantages of PPFs vs other investments

  1. One of the substantial PPF account advantages over other options is that the government shields it. PPF account comes with lower risk and guaranteed returns. The court can not order to attach a PPF account to pay off debts.
  2. PPF is tax-free on all levels, be it amount invested, interest acquired or maturity value making it more attractive to the investor and tax efficient.
  3. PPF is better than other investments because of its features like little savings, higher returns and flexibility for investors. One can start with just INR 500 for investment in PPF annually, and interest is yearly compounded, and payment can be in instalments or lump sum.
  4. PPF guarantees liquidity with loan availability, and partial withdrawal makes it a better choice to make economical use of invested amount.
  5. PPF offers investors the flexibility to either withdraw the full amount on maturity or re-invest it for the following five years and keep infusing.

Conclusion

The PPF interest rate for the quarter April 2022 to June 2022 of the FY 2022-23 is unchanged by the Ministry of Finance at 7.10% per annum. The public provident fund interest is computed every month on the lowest balance of the PPF account between the end of the 5th day and the last day monthly.

The PPF interest is estimated monthly and credited to the investor's account at the end of the year. Additionally, the investor should deposit a specified amount every month before the 5th to earn the interest for the whole month. It is the best way for the investor to gain the perfect return on the account balance.

FAQs

How to calculate PPF Interest?

The PPF interest rate is revised every quarter. For the recent quarter, April 2022 – June 2022, the interest rate is 7.1%. For this PPF scheme, interest is compounded each year. It is computed monthly and paid to the investors at the end of the financial year. Ideally, the interest is computed on the lowest balance in the PPF account of the investor between the fifth and close of every month. Investors can invest a maximum of INR 1.5 lakhs per annum and a minimum of INR 500 in the PPF account.

Which is better, FD or PPF?

Both Public Provident Funds and Fixed Deposits are secure investment choices. Both investments provide assured returns. However, their selection is based on the investor's requirements and investment portfolio. Compared to FD, PPF has an extended lock-in period of 15 years. Also, PPFs let premature withdrawals following the end of the 5th year with a withdrawal limit.

What interest rate can investors get on their PPF accounts?

The rate of interest is revised every quarter and administered by the government of India. The PPF interest rate has compounded yearly, estimated monthly and paid at the end of each financial year, i.e. 31st March. The present rate of interest on the PPF account is 7.10%.

Can investors withdraw money from the PPF account before 5 years?

No. PPF doesn't permit investors for partial withdrawals before five years. PPF has a condition on the withdrawal limit even following five years. However, investors can benefit from a loan on their PPF investment from the 3rd year.

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