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Reader Comment: PPF Interest Calculation

There was a doubt from a commenter:

One question regarding PPF.
http://www.rediff.com/getahead/2005/may/06ppf.htm

Please read "How to make it work to your benefit."
What they are saying is that interest is calculated only in the month of March. I find it very surprising if that is the case. And I typically put 70k in April itself so am I effectively losing money?

From the PPF Rules:

Interest – Interest at the rate , notified by the Central Government in
official gazette from time to time, shall be allowed for calendar month on the
lowest balance at credit of an account between the close of the fifth day and
the end of the month and shall be credited to the account at the end of each
year.

Meaning- the interest is calculated for every month. It’s only credited at the end of each year. So if you put in Rs. 5000 on the first of every month, the interest calculation will be:

April: Principal of Rs. 5,000 
May: Principal of Rs. 10,000
June: Principal of Rs. 15,000

and so on. The funda is that the interest in April will not apply as principal for May. Only next March, the entire interest for the year is calculated, and then is applicable for the principal starting the next April.

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