₹1.5 lakh in PPF: Lump sum in April vs monthly investing; how much difference does timing make in the final corpus?
If you have ₹1.5 lakh to invest in the Public Provident Fund (PPF) every year, does it matter whether you put the entire amount in April or invest it in monthly instalments? This write-up is dedicated towards discussing this aspect in detail, along with the salient features of PPF.
To put it simply, yes, timing can make a difference to the final corpus. This makes it critical for investors to plan investments properly after understanding the fundamental differences between the two investment approaches.
Currently, the PPF scheme offers investors an annual interest rate of 7.1%. The interest earned is compounded annually. Further, be clear that the rate is reviewed periodically by the government. PPF interest is calculated every month based on the lowest balance between the close of the fifth day and the end of the month.
These factors holistically make the beginning of the financial year extremely important. This is because if the complete amount, i.e., ₹1.5 lakh, is invested by 5 April, it can then earn interest for the year. This changes with monthly investments of ₹12,500, as only the funds deposited earlier benefit from more months of interest.
This technical aspect makes it essential for PPF account holders and aspiring investors to carefully read the prospectus of rules and regulations, only then, after proper due diligence, consider investing.
Keeping these important factors in mind, assuming a constant 7.1% interest rate and an annual investment of ₹1.5 lakh for 15 years, the broad comparison looks like the following:
What are the important points that investors must pay attention to?
The important points of consideration for investors here are that in both cases, exactly the same amount, i.e., ₹22.5 lakh over 15 years, is invested. The fundamental difference comes from how long the funds remain invested and continue to earn interest.
This highlights the value of time, patience, and staying invested in one’s PPF to reap maximum returns. Still, monthly investing also has its pros; one such pro is that it can make sense for individuals who plan their PPF investments from their monthly salary. But if the entire ₹1.5 lakh is already available, delaying the investment offers no benefit.
In summary, how much does the timing matter? At the currently offered 7.1% interest rate, investing the full ₹1.5 lakh in April rather than spreading it over the year can yield roughly ₹1.1-1.2 lakh more after 15 years. Therefore, in PPF, when the money is already available, early investment wins and helps an individual investor generate more wealth.
