Updated on October 4, 2023
The interest on a PPF is the money that your principal earns during the tenure of the investment. The government of India sets the interest rate for PPF every quarter based on the yield of government securities. This interest is compounded annually and is credited to the PPF account at the end of each financial year. The interest earned is exempt from income tax, which makes PPF one of the most tax-efficient investment options in India.
Importance of interest in PPF
In the context of a Public Provident Fund (PPF), interest plays a significant role in growing your investment over time. As per the current rate, PPF offers an interest of 7.1% per annum, compounded annually. This interest rate is set by the Government of India and can vary each quarter.
The interest on PPF is calculated on the minimum balance in the account from the 5th to the end of each month. Therefore, it’s advisable to make your contributions before the 5th of each month to maximize your returns.
Moreover, the interest earned on a PPF account is tax-free, which can significantly enhance your overall returns. The compounding of this interest over a long period of 15 years can result in substantial growth of your investment, making PPF a preferred choice for long-term savings.