PPF Investment: The interest rate of Public Provident Fund Scheme has remained at 7.1 percent since the year 2020. It fell from 7.9 to 7.1 in the April-June quarter of 2020 with a cut of 0.8 percent.
On the one hand, where there are frequent fluctuations in the interest rates of all types of investment schemes, the Public Provident Fund (PPF) scheme has remained at an interest rate of 7.1 percent for the last three years. The interest rate of Public Provident Fund (PPF) scheme has remained at 7.1 percent since the year 2020. It fell from 7.9 to 7.1 in the April-June quarter of 2020 with a cut of 0.8 percent.
Inflation increased but rates remained stable
Keeping the rates of the scheme at one place is a matter of concern in view of the ever-increasing retail inflation rate in the country. The biggest reason for this concern is that in July 2023, Consumer Price Index (CPI) based inflation has increased more than expected to reach its highest level of 7.44 percent in the last 15 months. But despite this no change was seen in the interest rate of the scheme.
Experts believe that there will be no change in the rate in the next quarter as well. But despite all this, according to experts, it is still a better option in terms of investment.
PPF interest rate calculation
- According to Pankaj Jain, senior partner at financial advisory firm Alpha Capital, PPF interest rates are linked to the 10-year government securities yield in the secondary market. The formula shows adjustments in small savings rates based on the last three months average yield of some government securities. Seeing these yields, the central government does a quarterly review.
- In 2016, as per the Finance Ministry’s formula, the PPF was pegged to the benchmark yield by 25 basis points. The benchmark 10-year bond yield has declined from March to May 2023, averaging 7.3 per cent.
- Pankaj Jain said that this fall in the benchmark yield casts doubt on the possibility of increasing the PPF rate. Considering the fall of 25 basis points, a hike in the PPF interest rate in the next review seems unlikely.
Benefits of PPF Scheme
Despite the continued stability in the interest rates of the PPF scheme, financial experts consider it a good investment option. The biggest reason for this is the tax benefit available in the scheme because its unique “EEE” tax benefit compensates for the low interest rate.
Jain also said that people should continue investing in PPF as it offers the best post-tax returns in the highest tax bracket.
While options like SSCS, SSY and MSSC can offer higher rates as their post-tax returns do not rival PPF. What sets PPF apart is its wide range and tax-free status. The scheme provides a safe and stable investment opportunity in direct competition to the Fixed Deposits (FD) of banks.
Money should be deposited by this date
A person investing in the PPF scheme should deposit his amount on or before the fifth day of every month. This fixes the interest benefit for that month as the interest rates applicable on the PPF account are calculated based on the minimum balance maintained in the account between the fifth and last day of every month. Whereas in this the interest on the deposit amount is calculated monthly. Therefore, the person who deposits the amount before the fifth day gets maximum interest. At the same time, there is a risk of not getting interest in that month for the person depositing the amount after this date.
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