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PPF Calculator: Investors in the Public Provident Fund (PPF) often face a dilemma: is it better to deposit money monthly or to deposit the entire year's amount in one go? While the total investment amount might be the same in both methods, there can be a significant difference in the interest earned.

Suppose you invest ₹1.5 lakh in PPF every financial year. You could choose to deposit ₹12,500 monthly. Alternatively, you could deposit the entire ₹1.5 lakh at the beginning of the year. However, the final calculations reveal an interesting picture.

Lump sum of ₹1.5 lakh or ₹12,500 monthly?

Let’s look at a 15-year example. The calculation is based on an annual interest rate of 7.1%, assuming the rate remains constant throughout the 15 years. It is also assumed that monthly investments are made before the 5th of each month.

Annual Estimated Return
Time to reach ₹2 lakh    Total SIP Investment    Estimated Fund
12.00%    13 years 5 months    ₹80,500    ₹2,00,130
15.00%    12 years    ₹72,000    ₹2,01,792
18.00%    10 years 10 months    ₹65,000    ₹2,00,552
By this calculation, the total investment in both methods is ₹22.50 lakh. However, depositing a lump sum of ₹1.5 lakh at the start of the year could yield approximately ₹1.24 lakh more at maturity.

Why is there a greater benefit with a lump sum investment?

Interest on PPF accounts is calculated on a monthly basis. For any given month, the interest is calculated based on the lowest balance available in the account between the 5th and the end of the month. If you deposit the full ₹1.5 lakh between April 1 and April 5, the entire amount can earn interest for all 12 months of that financial year. In contrast, with monthly investments, the funds accumulate in the account gradually.

This has a direct impact on the interest earned. Depositing ₹1.5 lakh at the beginning of April can yield approximately ₹10,650 in interest during the first year. Conversely, depositing ₹12,500 monthly results in interest of about ₹5,769 for the first year. This means a difference of around ₹4,881 arises in the very first year.

How does the gap widen over 15 years?

The additional interest earned on the lump-sum investment in the first year begins to earn interest itself from the following year onwards. This is the benefit of compounding.

If you make a lump-sum investment at the start of each year, your money earns interest for a longer duration. This difference accumulates over the 15 years, potentially resulting in a gap of approximately ₹1.24 lakh at maturity.

What if you don't have a lump sum of ₹1.5 lakh?

Not everyone has a large sum of ₹1.5 lakh available to deposit at the start of the financial year. In such cases, monthly investment can be a better option. You can deposit ₹12,500 each month to complete the ₹1.5 lakh investment over the course of the year.

Just ensure that the PPF deposit reaches the account before the 5th of the month. Deposits made after the 5th do not earn interest for that entire month; therefore, investing between the 1st and the 5th is considered preferable.

When should you make a one-time annual deposit?

If you have the funds ready for the entire year's investment, depositing the money between April 1 and April 5—as soon as the new financial year begins—can be advantageous. This allows the amount to earn interest for the full year.

However, you should not invest your emergency savings or essential funds into the PPF solely for the sake of higher interest. PPF is a long-term investment, and specific rules apply regarding withdrawals.

Which approach should you choose for PPF?

If you have the entire amount available at the beginning of the year, a lump-sum investment offers the potential to earn higher interest. On the other hand, for those investing from a salary or regular income, monthly investments are more convenient.

There is another advantage to monthly investing: you do not need to arrange a lump sum of ₹1.5 lakh all at once. Instead, smaller amounts are deposited regularly each month. Therefore, the best approach is the one you can easily sustain over the long term.

Disclaimer: This content has been sourced and edited from Money Control. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.