Here’s How The Interest On Your PPF Deposits Is Calculated

One of the most popular investment options is the public provident fund (PPF), it gives you benefits like tax savings under section 80C of the Indian Income Tax law, a long term interest from the funds deposited, and further tax exemption on maturity. The Indian government offers this saving scheme through banks, at a fixed lock-in period of minimum 15 years, and given a fixed return of interest according to the Ministry of Finance. As per the latest government notification, the interest rate on PPF is 7.1 percent effective from 1 April 2020.

The minimum tenure can be further increased in the blocks of 5 years. Moreover, the investment in PPF ranges from the amount as small as Rs. 500 up to Rs. 1,50,000. There can be lump sum investment made or in a maximum of 12 months installments, these investments have to be made at least once a year for a minimum period of 15 years.

You can use the calculator to calculate your investments and can get an idea of how much wealth can be gained with the variable principal and time period. A PPF calculator is an online tool that can help you calculate your PFF interest on your deposits easily and conveniently. – Use a PPF calculator to know your PFF interests well in advance.

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Here Is How The Interest On Your PPF Investments Is Calculated

  • The lowest balance from your PPF account is taken between the 5th day and the end of the month to calculate the interest on PPF
  • If the amount deposited by the investor is before the 5th day of the month, the interest it will get on that deposit is for that month. Or else, the previous month balance is taken into to calculate the interest.
  • There will be a marginal effect of a few hundred rupees on the interest earned by the investor if there is a monthly deposit made before or after the 5th day of the month.
  • The interest earned for the month of April will be on more balance if there is a lump sum investment per year by the investor before the 5th of April.

The Formula Used To Calculate PPF Investment

Below is the formula for calculating expected interest and the maturity value:

A = P x {([(1+ι)^n]-1)/ι}


A = Total Maturity Amount
P = Total amount of principal invested
ι = Interest rate expected
n = Time period of the investment amount

Since the time period of the investment amount is rising exponentially, we can conclude that the return will be at the higher end as the time period increases.

To understand the concept in a better manner, let us look at an example of compounding interest and its effect on overall investment for three different tenures.

Mr. Ram Lal invests Rs. 10,000 per year at the interest rate of 7.1 % ( current PPF rate)

Tenure 1: 15 years
Tenure 2: 20 years
Tenure 3: 30 years

Investment Tenure Total Amount Invested Wealth Gained Total Corpus Created
15 years ₹ 1,50,000 ₹ 1,21,214 ₹ 2,71,214
20 years ₹ 2,00,000 ₹ 2,43,886 ₹ 4,43,886
30 years ₹ 3,00,000 ₹ 7,30,061 ₹ 10,30,061


The Following Inferences We Can Draw From The Above Table

  • The wealth gained for investing Rs. 10,000 annually has doubled due to the increase in the investment period from 25 years to 20 years, hence the deposit tenure makes a huge difference in the total corpus created.
  • With the further addition of 10 years in the total amount invested from Rs. 2,00,000 to Rs. 3,00,000 for the investment tenure of 20 years to 30 years the wealth growth has a 3 folds increase, also interestingly as compared to the 15 years wealth gained the amount has increased by a staggering 7x factor of growth.

This helps us understand the importance of compounding of interest in the PPF scheme and must have given you a clear picture of the role of principal and time period which plays an important role in wealth creation. – Use a PPF calculator & find out the interest on your PPF deposits.

Points To Remember With Respect To The PPF Scheme

  • The rate of interest is compounded annually on the PPF
  • The government of India fixes the rate of interest every quarter of the year
  • At the financial ending of every year, the compounding takes place
  • An online PPF calculator helps you to plan as to how much money you need to invest, and the loan that can be availed and the amount that can be withdrawn, that too well in advance. You can use a PPF calculator anytime, and any number of times, to get an accurate estimate and plan your finances well ahead in advance.

Benefits Of Availing The PPF Scheme

  • The PPF scheme is one of the safest schemes to take advantage of, as it is backed and managed by the government of India.
  • The major factor to invest in PPF is the tax benefit you can use, there is a deduction available up to 1.5 lakhs on the principal amount according to the 80C section. Both interest earned and the maturity amount is tax-free.

There is a return of 7% to 8% historically on the interest. This rate is higher than the rate offered by savings accounts and Fixed deposits.

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