Public Provident Fund (PPF) is considered one of the best long-term investment options. The interest and tax benefits it offers make it very popular among the middle class. However, the method of calculating interest is slightly different, which most investors overlook. This calculation method holds an opportunity that, if properly utilized, can generate additional profits each year. The government calculates interest on PPF based on the lowest balance between the 5th and the last day of the month.

Mathematics of Interest Calculation

According to PPF rules, if the investment amount is deposited into the account on or before the 5th of the month, the entire amount earns interest for that month. However, if the deposit is made on or after the 6th, the investor loses that month's interest. Simply put, the date of investment is as important as the amount invested.

How to get extra interest

This trick is extremely simple and effective. Contributions should be made on or before the 5th of each month. The best practice is to invest on the 1st of each month. This allows the money to earn interest for a full 12 months. If the investment is delayed by even just one day and deposited on the 6th, the interest for that month becomes zero. Over a one-year period, this difference can be equivalent to 11 months' interest versus 12 months' interest. Over a 15-year period, this small delay can make a significant difference in the maturity amount.

Effect of Compounding

Given current interest rates, one month's interest may not seem like much at first. But the power of compounding comes into play in PPF. When an investor invests before the 5th of every month for 15 consecutive years, their maturity value can increase by thousands of rupees without any additional risk or investment. This benefit is especially significant for those who deposit a large lump sum once a year. If someone invests monthly, the timing of each month becomes even more important.

Best investment strategy

The safest way to take advantage of this strategy is for investors to make a point of depositing money on the 1st of every month.Sometimes, it can take a day or two for the money to be credited to the bank, so waiting until the 5th can be risky. Online transfers are generally faster, but it's still wise to keep a few days' margin.Those who invest once a year should deposit at the beginning of the new financial year in April to earn interest for the entire 12 months.

PPF isn't a get-rich-quick scheme, but rather a game of consistency and patience. This small precaution regarding the investment date doesn't affect an investor's tax status or risk exposure. It simply ensures that the investor's money works for the maximum amount of time each month. A small habit and a well-timed decision can help build a large and secure corpus in the future.

Disclaimer: News Crab recommends consulting a certified financial advisor before making any major investments. News Crab is not responsible for any investment decisions, so assess your financial situation yourself. The information provided in this article is for awareness purposes only and should not be considered an investment guarantee.