PPF, which stands for the public provident fund, was introduced in the year 1968 to mobilize small savings in a form of investment with guaranteed Returns. We all lookout for some sort of investment scheme that will keep capital secure and money growing without having to worry. We won’t come across the PFF buzzword for quite some years. So let us find out how PFF is calculated and what we would take home as returns.
What is a PPF Account?
A Public Provident fund account is more like a bank account but different. Let us find out how. The PPF account, also known as the Public Provident Fund program, is one of the most popular long-term saving-cumulative-investment solutions, owing to its mix of safety, returns, and tax benefits.
The National Savings Institute of the Finance Ministry introduced the PPF to the public in 1968. Since then, it has evolved as a potent tool for long-term wealth creation for investors. Investors use the PPF to establish a corpus for their retirement by putting money aside on a regular basis over long periods of time (PPF has a 15-year maturity and the facility to extend the tenure). The PPF is a popular choice among small savers due to its attractive interest rates and tax benefits.
So now that you know what is ppf account, do you think PF and PFF are the same? That is where you would go wrong. PF account and PPF account are different things. Let me explain and blow that cloud away.
What is the Difference Between PF and PFF?
PF
- It is for salaried employees from recognized businesses and organizations.
- The employer and employee contributions to the fund.
- The minimum investment for the scheme is 12% of the basic salary.
- There is no maximum limit to the investment made, but the employer’s contribution will be the same.
- The current rate of interest for the scheme is 8.50%.
- The lock-in period counts until the retirement of the employee.
PFF
- Anyone can invest in this scheme, including the ones in the informal sector.
- The contributor to this scheme is only the individual.
- The minimum investment for the scheme is 500 Rupees for a month.
- The maximum investment can only be Rs. 1,50,000 for a year.
- The current rate of interest for this scheme is 7.10%.
- The tenure for this scheme is 15 years.
So, now you know you can get yourself a PPF account without the contribution of an employer. Everyone wants to save up for retirement. Having to not worry about the future or have a source of backup is always a good thing. When you are wondering how the returns on the PPF account are calculated, we can find it here.
How to Calculate Interest on PPF?
1) Between the 5th and the end of each month, interest is calculated on the minimum balance in the PPF account.
2) This implies that if you make a new deposit before the 5th of each month, you will receive the interest for that month on that deposit. Otherwise, the prior balance is used to calculate interest.
3) A PPF subscriber should submit contributions or lump funds before the 5th of each month to maximize interest. The least amount required to be deposited in a PPF account each year is $500, with a maximum limit of 1.5 lakh.
Also, if a guardian or parent has opened a PPF account in a child’s name as guardian of the minor, the maximum amount that can be deposited in the guardian’s account, including the child’s account, is 1.5 lakh every year. Another thing to keep in mind is that contributions in a PPF account can be made in a lump payment or up to 12 installments per year.
4) Ideally, if you have the funds, you should deposit a bulk payment of 1.5 lakh before April 5th. It will allow you to earn interest on your one-time deposit for the duration of the year
5) Let’s look at an example to show how much you get if you deposit money in your PPF account before the 5th of the month. For example, suppose you have a 1 lakh balance in your PPF account the previous fiscal year. You deposited $50,000 before April 5th, so your lowest monthly amount from April 5th to April 30th was $150,000. So you will receive 988 in interest for the month of April.
Use the Online Calculator
Handling calculations may not be easy for all of us. If you want to invest in PPF but aren’t sure how much to put in or how much you’ll earn back if you put in a certain amount, our PPF calculator can help.
Once you’ve determined how much you can afford to invest on a regular basis, the calculator uses a 15-year tenure and the current interest rate to calculate your returns.
Conclusion
Now that you know how the interest on a PPF account has been calculated and how much you would earn if you invest in a PPF scheme. Why don’t you get started? It is a safe plan, with guaranteed investments, where you do not have to worry about loss of capital or unearned interest.
