A PPF deposit made after the 5th of a month gets no interest for that month. PPF interest is calculated each month on the lowest amount between the close of the 5th day and the last day of the month, so money that arrives on the 6th is not part of that lowest amount. The interest for all twelve months is then credited once, at the end of the financial year.
The rule is simple, but it decides how much interest a family gets over fifteen years. This post explains the rule, shows the arithmetic with an illustrative rate, and covers the timing details that catch people out.
How is PPF interest calculated?
Each month, the PPF looks at the amount in it from the close of the 5th to the end of the month and picks the lowest figure in that window. Interest for the month is that lowest amount multiplied by the yearly rate and divided by twelve.
Two things follow from this:
- A deposit on or before the 5th raises the lowest amount for that month, so it gets interest for the month.
- A deposit on the 6th or later does not raise the lowest amount, because the amount from the 5th to the day before the deposit was lower. It starts to get interest from the next month.
The monthly figures are added up and credited to the PPF on 31 March, at the end of the financial year. You will not see interest arrive every month. You see one credit a year.
What rate should you use?
The government sets the PPF rate and reviews it every quarter, so the rate can change within a year. We do not quote a current rate here. For the examples below we use an illustrative rate of 7%, chosen only because it makes the arithmetic easy to follow. It is not the current rate, and it is not a prediction.
How much does the date change the interest in a year?
Take Asha Rao in Pune, who deposits ₹1,50,000 into her PPF once a year. Assume the PPF starts the year empty, so the example shows only the new money.
One deposit in April
If the ₹1,50,000 reaches the PPF on 4 April, it is in the lowest amount for April and every month after it. That is twelve months of interest:
₹1,50,000 × 7% = ₹10,500 for the year.
If the same deposit reaches the PPF on 6 April, April's lowest amount is zero. The money gets interest from May to March, which is eleven months:
₹1,50,000 × 7% × 11 ÷ 12 = ₹9,625 for the year.
Two days of delay cost ₹875 of interest, which is exactly one month's interest on ₹1,50,000 at the illustrative rate.
Monthly deposits
Now say Ravi Rao deposits ₹12,500 every month instead, which also adds up to ₹1,50,000 over the year.
| Pattern | Months of interest per deposit | Sum of monthly amounts | Interest for the year |
|---|---|---|---|
| Each deposit by the 5th | April deposit 12, May 11, down to March 1 | ₹9,75,000 | ₹5,687.50 |
| Each deposit after the 5th | April deposit 11, May 10, down to March 0 | ₹8,25,000 | ₹4,812.50 |
The sum of monthly amounts is the amount that gets interest in each month, added up across the year. With deposits by the 5th, the amounts run ₹12,500, ₹25,000 and so on up to ₹1,50,000, which adds to ₹9,75,000. Interest is that sum × 7% ÷ 12, which gives ₹5,687.50. With deposits after the 5th, every deposit loses one month, the sum falls to ₹8,25,000 and the interest falls to ₹4,812.50.
The gap is again ₹875 in the first year. Every one of the twelve deposits lost a month, and twelve lost months of ₹12,500 equal one lost month of ₹1,50,000.
The monthly pattern gets less interest in the first year than the single April deposit in both cases. That is not a penalty. The money simply arrives later, so it spends fewer months in the PPF. All figures here are illustrative and use the 7% example rate.
Why does a small gap matter over fifteen years?
₹875 looks small. But interest for one year is credited on 31 March and becomes part of the PPF for the next year, so it gets interest too. A month lost early in the PPF's life is a month of compounding lost for every year that follows. A family that habitually deposits on the 7th, year after year, gives up a month of interest on every deposit for the whole life of the PPF.
The fix is a date, not a sum of money. The same rupees, deposited a few days earlier, get more interest.
What timing details catch people out?
Online transfers are not instant
If you deposit through net banking, the money has to be credited to the PPF by the 5th, not merely sent. A transfer started late on the 5th, or on a day the bank is closed, may be credited later. Many families set their PPF deposit for the 1st to 3rd of the month to leave room.
Salary day may be after the 5th
If salary arrives on the 7th, a monthly PPF deposit from that salary will always miss the 5th. The arithmetic leaves two options: deposit from money already in the bank before the 5th, or move to a single yearly deposit made by 5 April.
The financial year boundary
The year's PPF deposits must reach the PPF by 31 March to count for that financial year, both for the yearly limit and for keeping the PPF active with the minimum deposit. A deposit made on 2 April counts for the new year, and because it arrives before 5 April, it gets interest for all of April.
A PPF for each child
A PPF in a child's name, such as one for the Raos' daughter Meera, follows the same 5th-of-the-month rule. It is easy to remember your own deposit and forget the child's, because it comes from a different bank or a different parent.
How can a family make the 5th routine?
- Pick one deposit day, between the 1st and the 3rd, for every PPF in the family.
- Write down which bank each deposit comes from and who makes it.
- Set a notification a day or two before that date, not on the 5th itself.
- Mark the deposit done once the bank shows it credited, so nobody deposits twice.
- In January, check each PPF's total for the financial year against the yearly limit and the minimum.
The 5th sits next to the other fixed dates of the year, such as the advance tax dates and the 31 July ITR. See them together in the Indian household money calendar.
How Kosh helps
In Kosh you add each PPF deposit once, with its schedule, for every PPF in your Household, including a child's. Every Member with notifications on gets a notification on the due date, and a lead time can send it a few days before the 5th. Anyone who makes the deposit ticks it done, and the other phone shows it. The Family tab adds up every Member's PPF next to funds, NPS and loans. Kosh tracks and warns; you decide.
Kosh is in private testing on iPhone and free during testing. See ourkosh.com.