Finance

I Contribute Fully to My Public Provident Fund (PPF) Account Each Year

Posted Vinaya HS

Yeah. You read that right. I contribute fully to my Public Provident Fund (PPF) account each year. And in the very first week of April.

Here’s why I do it?

  • The contribution, interest earned, and payout are Exempt, Exempt, and Exempt (EEE) from Income Tax — and I don’t foresee this changing despite all the hullabaloo. EEE @ 8% compounded is pure magic. When you don’t want to trade your time for money, your Public Provident Fund will be your pillar.

  • The [remaining] tenure is a perfect match for my goal for financial independence financial freedom (given my new insights). It didn’t start with this goal, but it will end with this goal. As I recently read, you should ask someone 10-years older than you for financial advise. I didn’t, but maybe you can take a leaf out of my book.

  • I’d seen my parents do this. Now I know why they did this. As a reader once commented, “there’s a lot to be learned from the fixed deposit generation.”

Here’s how I do it?

  • In the first week of each April, I withdraw the accumulated cash and make a deposit into my Public Provident Fund account. (When I switch to the Recurring Deposit mode of savings, the Recurring Deposit would automatically mature and convert to liquid cash in the beginning of each April. I’d get to pocket the additional interest earned.)

  • I don’t do this just for the sake of Section 80C.

That explains my approach to the Public Provident Fund.

What’s your approach?

7 thoughts on “I Contribute Fully to My Public Provident Fund (PPF) Account Each Year”

  2. Nothing uncommon about this. Many people do this. EEE@8% is fine only when one is clear about the corpus needed for ones goal and if 70K pa is enough for that. The implicit assumption is actual inflation is nearly same as assumed inflation. This is the danger since present inflation is close to double digits. No guarantee that down the line it would come down and stay well below 8%

    One assumes you invest enough in equity. You must make this clear in the post. To the uninitiated this would seem like a very good thing to.

    An alternate (if not better) strategy would be do contribute less to PPF far away from goal invest in equity and as the goal near decrease equity component and enhance PPF subscription.

    Anyway the bottom line is not about higher interest rates. The bottom line is for a predetermined (approximately average) interest rate are you saving enough per month to achieve a goal. This calculation could be done with 15% or 5% it doesn’t matter

  3. PPF interest is credited every mar. 31st. So I don’t think it matters if you invest 70K on April 1st of that fin year or march 1st or that fin year.
    Can somebody confirm this? If yes then its the same. So in fact you are investing it a little too early. You could wait for another 11 months get more interest and then pay it on march 1st of that fin. year.

  4. Hi James,

    It is not the same. You will not get interest for the whole year if you invest on 1st Mar. You will only receive the interest for the month of Mar.

    To throw a little more light on this, you will receive the interest for the month if you invest on or before 5th of that month. For e.g. if you invest a sum on 6th of Sep, you will not receive interest for the month of September. You will start receiving the interest on this amount from the start of Oct.

    This information is based on my personal experience investing in PPF.

  5. @venkat:

    Inflation is a much “abused” word. But your comments have given me a great idea for a follow-up post. Stay tuned. And thanks. :-)

    @Sandriano:

    Thanks for pitching in with your comment. :-)

    My personal experience also says that making the full contribution on or before the 5th of April is the best way to maximize your interest earned.

  6. Vinaya,

    Thanks for the post, don’t you think the returns that we get from PPF will barely/not beat inflation (8%) . Investment via SIP in good equity MF for a long term would give you returns in the range of 10 – 12 %. Though there is no guarantee but over long term equity has performed well over debt funds. What’s your take?

    Rakesh

  7. It all depends on your investible surplus. Debt is like a hedge fund for you in case of a volatile situation. PPF is a debt and as rightly said doesnt provide value, it provides only protection to your investment. Also it will prove a disaster if you only have 1 lac per year for investment and you invest 70k totally in PPF. You can max it up only when the total PPF investment reaches to a percentage in your entire portfolio. For eg: for you 20% and for the middle aged 40% and so on.

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