# PPF: Investing Before 5th vs. Investing After 5th

A little too much is made of the importance of investing in PPF before the 5th of the month.  How important is this? What if I fail to invest before 5th for a few months? Should I beat myself up about it?

Let us find out using the PPF tracker/calculator.

Assumptions:

Annual investment limit: Rs. 1,50,000

Interest rate fixed for the entire tenure: 8.7%

Fixed Monthly Investment: Rs. 12,500 or

Fixed Annual Investment: Rs. 1,50,000

## Investing each month

Final Maturity value if all the monthly investments are made before the 5th of the month:  Rs. 45, 04, 384

Final Maturity value if all the monthly investments are made after the 5th of the month:  Rs. 44, 73, 197

Difference: Rs. 31, 187

I hope you will agree with me that this difference of Rs. 31,18 7, to be realized after 15 years is trivial.  The person who always invested before the 5th gained about 2.5 times the monthly investment compared to the person who always invested after the 5th.

It hardly matters when you pay the subscription.

Of course, if you choose not to invest the maximum Rs. 1.5 Lakh in PPF    and had invested the money if equity, you will, after a few years of investing, gain or lose Rs. 30,000 (or more!) in a single day!

Of course, 44-45 Lakhs after 15 years is not a great achievement either, even if it is tax-free.

But then again, PPF fans are oblivious to such realities.

## Investing once a year

There are those who believe that it is best to make PPF investments between April 1st -5th of each financial year.  Let us find out how beneficial this is.

Maturity value if yearly investment of Rs. 1.5L is made before April 5th for 15 years:  Rs. 46,75, 914

If monthly investments of Rs. 12,500 are made before the 5th of the month for 15 years, the maturity value (as seen above) is: Rs. 45, 04, 384

The difference is 1,71, 529 . This is indeed significant.

However, how many  members of the PPF fan club can afford to shell out Rs. 1.5 Lakhs in one shot?

They can always delay the opening of the account by a year, until they have enough to make annual investments and then ensure they invest once a year before April 5th.  How practical would that be  (wrt to the financial goal), is something that each person will have to decide.

Also, the delay of a year should be taken into account if someone wants to compare ‘benefits’.

Now,

Maturity value if yearly investment of Rs. 1.5L is made after April 5th for 15 years:  Rs. 46,44, 726

Again, the difference between ‘before 5th’ and ‘after 5th’ yearly investments is only Rs. 31, 187

## Bottom Line (for PPF fans)

Forget about the ‘before 5th’ vs. ‘after 5th’ nonsense. Invest what you can, when you can.

## Bottom Line (for investors)

There is more to investing than tax-saving and EEE instruments. Invest according to an asset allocation suitable for financial goals.  PPF can certainly be part of a portfolio with investments in line with the asset allocation.

Let us not forget that securing 8-9% growth over 15 years could well result in a negative  real return!

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## 27 thoughts on “PPF: Investing Before 5th vs. Investing After 5th”

1. Rakesh says:

Thanks Pattu. Things become fairly obvious when you have facts right in front of you (like all your calculators 🙂 ).

Regarding the PPF investment itself i would like to put slightly different perspective. I believe this is one of the really important investment instrument everybody has to consider. Agreed it may not have high returns as equity(direct or through MF) however when you compare you also need to consider consider the 80C benefits as well as the tax free interest. With this it may well beat the inflation especially for people under higher tax bracket(not a big fan of ELSS and rather prefer to invest in diversified MF and other instruments under 80C ).

Probably an idea to make a calculator to see if this is really true!!

1. pattu says:

Thanks Rakesh. I am not a fan of taking the 80C benefits into account while calculating PPF returns. The 80C benefit is an actual benefit only if the money is invested right.

1. Rakesh says:

I would slightly disagree there. While i am against investing for the sake of 80C benefits, my point was to look at risk adjusted returns and your financial goal when you choose an investment avenue. I dont see anything wrong in taking into consideration the tax benefits as one of the parameter to decide your investment avenue.

For e.g. i wouldnt consider buying insurance policy just because you get 80C benefits (frankly i dont consider insurance as investment at all!!), i would definitely compare investment returns that i can expect if i invest in an instrument where i can get 80C benefit v/s something that doesnt provide. Essentially my goal should be to maximize the returns i can get for my investable surplus against the risk i am willing to take

2. Rakesh says:

Thanks Pattu. Things become fairly obvious when you have facts right in front of you (like all your calculators 🙂 ).

Regarding the PPF investment itself i would like to put slightly different perspective. I believe this is one of the really important investment instrument everybody has to consider. Agreed it may not have high returns as equity(direct or through MF) however when you compare you also need to consider consider the 80C benefits as well as the tax free interest. With this it may well beat the inflation especially for people under higher tax bracket(not a big fan of ELSS and rather prefer to invest in diversified MF and other instruments under 80C ).

Probably an idea to make a calculator to see if this is really true!!

1. pattu says:

Thanks Rakesh. I am not a fan of taking the 80C benefits into account while calculating PPF returns. The 80C benefit is an actual benefit only if the money is invested right.

1. Rakesh says:

I would slightly disagree there. While i am against investing for the sake of 80C benefits, my point was to look at risk adjusted returns and your financial goal when you choose an investment avenue. I dont see anything wrong in taking into consideration the tax benefits as one of the parameter to decide your investment avenue.

For e.g. i wouldnt consider buying insurance policy just because you get 80C benefits (frankly i dont consider insurance as investment at all!!), i would definitely compare investment returns that i can expect if i invest in an instrument where i can get 80C benefit v/s something that doesnt provide. Essentially my goal should be to maximize the returns i can get for my investable surplus against the risk i am willing to take

3. The Last line says 'Let us not forget that securing 8-9% growth over 15 years could well result in a negative real return!'

if i invest Rs, 150,000 every year at 8.7% rate, I WILL beat inflation, won't I ?

It is compounded, which means interest is earned on accumulated interest as well.

Plus, it is tax free, unlike FDs and other investments. Thus, it is more likely to beat any other investments made(except equity).

Investing Rs. 150,000 before the 5th of every month is investing the right way for achieving he most out of the PPFs and to beat inflation as well. Correct me if I am wrong.

Very informative article.
Thank You.

4. The Last line says 'Let us not forget that securing 8-9% growth over 15 years could well result in a negative real return!'

if i invest Rs, 150,000 every year at 8.7% rate, I WILL beat inflation, won't I ?

It is compounded, which means interest is earned on accumulated interest as well.

Plus, it is tax free, unlike FDs and other investments. Thus, it is more likely to beat any other investments made(except equity).

Investing Rs. 150,000 before the 5th of every month is investing the right way for achieving he most out of the PPFs and to beat inflation as well. Correct me if I am wrong.

Very informative article.
Thank You.

5. sundararajan says:

I may agree with Rakesh and Sahil on this. If some one on higher tax bracket (or even in 10/20%), one has to get return well above pre tax 11/12 % consistenly every year for 15 years. (assuming PPF rate remains at least above 8% every year). Compare to equity , it is risk free, assured, returns are tax free and add 80c benefits. I don’t see a reason, why not take advantage of it.
BTW, I haven’t done this so far.

1. It is not about the return or the tax benefits. Would the corpus be sufficient if one maxes out PPF for 15 year. That is the only relevant question.

6. sundararajan says:

I may agree with Rakesh and Sahil on this. If some one on higher tax bracket (or even in 10/20%), one has to get return well above pre tax 11/12 % consistenly every year for 15 years. (assuming PPF rate remains at least above 8% every year). Compare to equity , it is risk free, assured, returns are tax free and add 80c benefits. I don’t see a reason, why not take advantage of it.
BTW, I haven’t done this so far.

1. It is not about the return or the tax benefits. Would the corpus be sufficient if one maxes out PPF for 15 year. That is the only relevant question.

7. Abhi says:

True. May be as investment alone in ppf doesn’t make sense, but in conjunction with equity – it does make sense. In our portfolio, there has to be a debt side as well. That’s where ppf comes in. As I don’t know any debt MF or other instrument guaranteed to give 8.7% post tax returns.
By definition, debt instrument will give you negative returns over long term. It doesn’t mean people should discard it.

8. Abhi says:

True. May be as investment alone in ppf doesn’t make sense, but in conjunction with equity – it does make sense. In our portfolio, there has to be a debt side as well. That’s where ppf comes in. As I don’t know any debt MF or other instrument guaranteed to give 8.7% post tax returns.
By definition, debt instrument will give you negative returns over long term. It doesn’t mean people should discard it.

9. Ruturaj says:

Wishlist I wish you put a table describing monthly Sip return of Major ElsS and monthly payments in PPF.

And other table describing Else return if 1.5 l is invested in one go
With 3 yearly return referring to returns of course outperformer ELSS

10. raghav says:

am with Abhi on this.. What if we look at PPF (investing 1.5L before 5th) as a form of debt investment with guaranteed 8+% returns + deduction benefit ? Is that a wrong assumption?

however, I do agree that having both debt mf as well as ppf compromising equity allocation is a bit suicidal..

11. lakshminarasimman says:

sir
in my own experience i opened ppf account when my children were born
like you said i put money whenever i can whatever i can . that is the main point in any investment product

trust me when they reached college admission even bsc bcom seats hostel fees computer class fees were becoming very costly. because of ppf i had a good sum

based on my own mental comfort , for my retirement goals i had 15 yrs so monthly i put 60% in mutual fund and 40% in ppf simply for the fact at least 40% of my money is safe.

whatever tax benefit i got due to 80c in ppf was not my main concern.

12. KKRAO says:

Regarding the MF investment, I sometimes get a doubt that who guarantee for our investment? BSE/AMFI .Though we do invest in large sums, to the tune of 30 to 50 lakh in indifferent AMC’s, my doubt need to be clarified please?

13. lakshminarasimman says:

to kkrao

as far as i know
fixed deposit – 1 lakh guarantee (yes only one lakh)
so if “safe” fixed deposit itself only 1 lakh guarantee you can imagine about mutual funds

14. Satya says:

Hello Sir,
Is it same way the Sukanya Samridhi Account interest calculates?

Thanks
Satya

1. freefincal says:

yes.

15. Surya says:

Pattu
I always max out before 5th April lumpsum in both my and spouse account . After 15 years for my account and 7 years for spouse I’m happy that I’ve opted for it . Last I calculated taking into consideration EEE , this investment has given me abt 13% pretax . I do not know any other investment which could have safely given me that .
Talking of investing in debt MF and SIP into equity MF – please go into manual SIP rather than automatic . There is no guarantee how much time the market can be in a bear phase at the time that you want to exit when your goals are near .
You need to have a combination of assets and a minimal lifestyle to beat any challenges in life .

16. Mani.somu@gmail.com says:

Thanks pattu, this is the only post of yours that I could completely understand, because , this is the only investment that I’m making every month.

17. Satish Kumar Sharma says:

Sir,you missed one point while suggesting investing Rs150000/- in one go between the 1st – 5th April every year. As per income tax rules, the tax savings investments have to be made out of the income pertaining to that particular FY only and not out of any earlier savings or proceeds of earlier investments or any loan or advance. So, any salaried person can not invest in the month of April and that to within the salary amount. I was caught on the wrong foot once by the ITO when I invested Rs.20000/- out of Nsc’s proceeds in the month of April.

18. Satish says:

please clarify the position