PPF returns are fixed by the Central Government. They are set every quarter according to prevailing interest rates on government bonds. This system was introduced from FY 2016-17. The interest rate for July-September 2019 (Q 2, 2019) has been fixed at 7.9% while the interest rate for April-June 2019 was fixed at 8%. Historically, PPF rates have fluctuated around 8%.
PPF Interest Calculation
Interest on PPF is calculated monthly on the lowest balance between the close of the fifth day and the last day of every month, i.e. for the purpose of interest calculation, the amount that is deposited into the account before 5th of the month is only considered.
So if any money is deposited on 6th of a month, then no interest will be paid on that amount in that month. Hence it is advised that deposits should be made between 1st and 5th of the month to maximize the returns.
How much Tax is applicable on PPF Returns?
PPF returns are fully tax-exempt. Withdrawal from the PPF on maturity and even partial withdrawal before maturity is exempt from tax.
Historical PPF Rates
You can get an idea of historical PPF rates in the table below:
|Q2, FY 20||7.9%|
|Q1, FY 20||8%|
|Q4, FY 19||8%|
|Q3, FY 19||8%|
|Q2, FY 19||7.6%|
|Q1 FY 19||7.6%|
|Q4 FY 18||7.6%|
|Q3 FY 18||7.8%|
|Q2 FY 18||7.8%|
|Q1 FY 18||7.9%|
|Q4 FY 17||8.0%|
|Q3 FY 17||8.1%|
|Q2 FY 17||8.1%|
|Q1 FY 17||8.1%|
PPF Returns vs Bank FD Returns
Most bank FDs provide a slightly lower rate of return than the PPF mean rate of 8%. The highest FD rate in SBI Bank is 6.85% (for a tenure of 5-10 years). The highest FD rate in ICICI Bank is 7% for 2-5 years. The highest FD rate in Axis Bank is 7.10% for a term of 1 year to 14 months. The highest FD rate in HDFC Banak is 7.25% for a term of 1-2 years.
PPF Returns vs ELSS Returns
ELSS or Tax Saving Funds do not provide guaranteed returns like the PPF because they invest in stocks. However they also offer tax deductions under Section 80 C for contributions up to Rs 1.5 lakh, like PPF Their past 5 year CAGR has been much higher than the PPF return. According to Value Research, the 5 year CAGR of the ELSS category is 21.19% compared to 8.2% for the PPF.
PPF Returns vs NPS Returns
NPS Returns depend on the asset allocation chosen and the performance of NPS funds. They are not guaranteed, while PPF returns are guaranteed. However by way of indicative performance, using the Central Government NPS as a proxy, NPS has delivered 10.15% on average over the five years ending July 31st, 2018. This is higher than the PPF return of 8.2%.
How to maximize PPF returns
Invest before the 5th of every month. PPF interest is calculated on the lowest balance between the 5th and last day of every month. For instance, if you deposit Rs 10,000 on 2nd Jan and another Rs 10,000 on 15th Jan, the interest will only be calculated on Rs 10,000 and not Rs 20,000.
Invest the largest amount you can afford (up to Rs 1.5 lakh) at the start of the financial year to get the full benefit of compounding. Invest this amount before 5th April to get the full interest for all 12 months of the financial year. Do not delay your investment till the end of the year, this will only reduce your PPF return.
PPF Returns after 20 years
PPF Returns will after 20 years give you the compounded value as per the average interest rate declared in the 20 year period. For example, if the average rate is 8%, Rs 1.5 lakh invested over 20 years will grow to as much as Rs 40.72 lakhs.