Thinking of investing Rs. 1.5 Lakh in PPF this April? Don’t be in a hurry!

Here is why you should not be in a hurry to invest Rs. 1.5 lakh into PPF within the first five days of April!

Thinking of investing Rs. 1.5 Lakh in PPF this April Don't be in a hurry

Published: March 31, 2020 at 11:27 am

Last Updated on

Now that the finance ministry has clarified that FY 2020-2021 will start from 1st April 2020, investors who wish to kick off their tax-saving exercise for the new FY can do so. In particular many have a habit of investing Rs. 1.5 Lakh between April 1st to April 5th to “maximise” the interest benefits of PPF. Here is what you need to consider before you do so this time (every time)

Investors who have not yet exhausted their 80C investments for FY 2019-2020 have been given until June 30th 2020 to so do. They will have to account for such transactions made bet April to June 2020 appropriately while filing for ITR. That is, they will have to either club those transactions as done in FY 2019-2020 or FY 2020-2021 making sure there is no double entry.

The reason why investors (who can afford to) invest the maximum amount within the first five days of April is well known. The entire Rs. 1.5 lakh (plus existing balance) would receive interest for the full financial year. This is also true for Sukanya Samriddhi Yojana. If the money was staggered then the amount of interest would be lower. We have already shown that over 15Y, considering inflation and the need to have substantial equity, when you invest in PPF does not matter much: Investing Before 5th vs. Investing After 5th. Also see: Sukanya Samriddhi Yojana vs PPF: An Illustration

Since PPF has a 15-year tenure (extendable in blocks of 5 years for life) the only two life goals it can be used for is retirement and children’s education (if started early enough and better than SSY for girls).

For such goals, significant equity exposure is mandatory since most investors cannot afford to invest the amount necessary with 100% PPF/EPF exposure and still attain their goalsSee why: Can I Plan My Retirement With Recurring Deposits and Fixed Deposits?

At least 60% in equity for at least a few years would be necessary to stand a fighting chance against inflation. If investors rush to put in Rs. 1.5 lakh in PPF during the first five days of April each year, the asset allocation to equity would decrease.

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For many, it was not significant, to begin with. The sustained maximum investment in PPF can only make this worse. Investors will need to look beyond the tax-free comfort of high returns from PPF which is not sufficient for financial freedom after retirement.

Only those who can afford to keep total fixed income exposure (PPF + EPF + FDs etc) to about 40-50% of the portfolio with rest in stocks can and should max out PPF each FY. Failure to do so can prove costly in the long run.

FY 2020-2021 is especially a good year to invest in equity after the market crash. So any amount earmarked for PPF can be invested into equity if your portfolio has the necessary room for it. So do consider your asset allocation and your financial goals before rushing to invest Rs 1.5 lakh in the first days of the new financial year.

My strategy: I use PPF for retirement (mine and my wife’s) and my son’s education goals (minor PPF + PPF acct of my mother). All PPF accounts are more than 10 years old and none of them ever saw fresh investments of Rs. 1.5 lakh because it was not suitable for the asset allocation I had in mind.

I have thrice rebalanced from my equity mutual funds (tagged to my son’s portfolio) into PPF. This is how I was able to build a corpus equal to the current cost of UG education in the PPF accounts. This helped me stay calm during the crash.

The right asset allocation is the key to successful investing. Not tax-saving, tax-free guaranteed returns. Investments that look secure and comforting now may come and hurt you hard.

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26 Comments

  1. Namaskaram,

    If we want to invest in ELSS in the month of April then will it be considered for FY 2019-2020 or FY 2020-2021?

      1. This gives rise to potential fraud. I can invest in ELSS fund in April and report in my ITR form of 2019-20 while I can also show it to my employer for 2020-21 exemption.
        And I will probably not get caught at all

        1. Finance ministry has clarified about financial years but has remained silent about investment U/S 80C and other such investments for F Y 2020=2021 so as to make available the benefit of deductions for A. Y 2021-2022.In this situation I understand that one should make such investments only after filing return for F Y 2019 2020 after June 2020 with postponement of investment in PPF etc .till 1,July 2020.(for F.Y 2020-2021.)

  2. Do you include employer’s contribution towards EPF when calculate the fixed income exposure based on an individual’s asset allocation?

  3. Please note as a senior citizen we heard that SCSS Account interest rate is 8.60% which is close today (31.03.2020). Due to lockdown period we unable to open up SCSS account and deposit money. What are the status about the same.

  4. This gives rise to potential fraud. I can invest in ELSS fund in April and report in my ITR form of 2019-20 while I can also show it to my employer for 2020-21 exemption.
    And I will probably not get caught at all

  5. What common citizen of India should do, who could not be able to invest money in government scheme for tax savings purpose in last week of march due lockdown ? Who could not be able to invest in government scheme in last week of march where last date was 31 at march.( Pmvvy scheme ending on 31 at march 20)

  6. This is really sad. Government took advantage of the lockdown and decreased rates at a time when senior citizens simply didn’t have the option to invest in SCSS and PMVVY at old rates during the last 10 days of March. If government can give moratorium to borrowers, why not extend a 1 month window to senior citizens as well to lock in deposits at old rates?

  7. There used to be a clause that the investment made into PPF should be out of that fiscal year’s earnings only to be eligible for 80C benefit entitlement. Investing in PPF between 1st and 5th April is most likely not going to be satisfying this condition for many. Please clarify. Thanks.

    1. Sri. AD:

      You are correct. Such a requirement which was stipulated earlier has been relaxed for quite some years now.

      One can now pool funds and subscribe from 1st Apr onwards specific to that particular FY. Only for current FY (2020-21) it is peculiar because of PANDEMIC since counters are kept open for previous year subcriptions u/s 80C till 30 June 2020.

  8. Due to lock down I am unable to get my PPF account extended for another 5years after completing mandatory 15 years Term. So can anyone help how it is going to be done as I want to invest for FY 20-21 for tax savings.

    1. Sri. AKK :

      PPF Scheme provides for extension in a Block of 5 years after the first 15 years. Wherever you have maintained your PPF A/c, such extension will be done, ONLY AFTER YOU APPLY IN WRITING. If the Prescribed Application is not readily available, even a simple written request will do. I am saying this based on my experience where I still hold PPF A/c, opened during 1981.

      Please allow the present Lockdown period to get over before you can approach for such extension, when the Counters resume normal operations. This year (FY2020-21) subscription u/s 80C is peculiar due to PANDEMIC, as previous year contribution u/s 80C is kept open till 30 june 2020.

  9. I fail to understand that why I should not invest Rs. 1.5L under 80C in my PPF account for FY 2020-2021,durin the period 1.4.2020 – 5.4.2020. I would like to invest.
    Please advice. Thanks.

  10. Sir:

    Refer to Sri. Aravind Bhai Shah made in this Forum reg PPF contribution for FY2020-21 (between 1st to 5th April) and Query of Sri. Devendra Jain on the same subject seeking advice.

    My query is also same as Sri. DJ. Kindly advice in your reply. I am a Sr. Ctz, PPF subscriber every year between 1st-5th Apr so as to maximise Interest earnings.

    Thank you

    RSS

  11. I would like to know whether Government has extended PMVVY (Prime Minister’s Vaya Vandana Yojana) scheme for Sr Citizens further in FY 2020-21.

  12. I tried to invest 1.5 lacs in my ppf account today I.e 1st April 2020 but it failed and said that deposit limit is exceeding. When can we start investing for this FY

    1. Sri. AKP:

      Banking transactions does not happen on 1st Apr, due to year end. If you tried on 2nd Apr or later, pls share your experience. Thanks

  13. Thanks for the article, Sir. You mentioned about opening minor PPF account. Since father only contributes to minor account, I thikl father can’t invest more than 1.5 lakhs combined in both accounts. I mean to say that father can’t invest 3 lakhs in a year in PPF. If it is true, i am thinking if there is a real benefit of opening multiple PPF accounts

  14. Hello Sir,

    Do you mean that one should not invest PPF or Sukanya by 5th April only this year 2020 or always? Please let me know when can I start investment this year

    Thanks
    dinkar

  15. Dear Prof, can BAF take place of PPF and schemes like Sukanya Samriddhi in the times to come as retirement corpus with so called low volatility? With their dynamic asset allication they should be able to give an alpha of upto 2% over PPF and the likes.

    1. The philosophy of the present Government is different. The government has no interest in the saving
      Culture of the citizens like earlier regimes. The government now wants as much taxes as possible from the citizens. They have recently reduced the interest rates on various schemes, such as PPF, Scss, FD etc.

  16. Sir
    Has the Government closed the 7.75 RBI bind issue. Have been trying through ICICI Direct since 22nd March . But to no avail . No info on this either in RBI website or elsewhre ( I Mean on closure)

    1. Madam:

      I too tried by approaching SBI, Main Branch, Bangalore after 23rd onwards. But application was not accepted due to LOCKDOWN prevailing now.

      Let us hope that this will get resumed very soon without any further modification to the Scheme or the Rates.

  17. To, Sri Pattabiraman & Others
    Hello Sir:

    Kindly inform detailed/reasoned Pros & Cons of investment in Bitcoins in India with particular reference to Senior Citizens along with safety precautions to be exercised.

    Thanks

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