2 accounts

POSTED BY Ajinkya Darshane ON January 24, 2012 9:53 pm COMMENTS (9)

i have learned from ur discussions that, one time payment at the start of d financial yr in ppf would fetch maximum returns, so luking at the interest rates of fd’s and rd’s…is it a gud idea to open RD for one yr and transfer that amount to ppf account to gain max returns? ( if we are unable to do one time payment in ppf ) or monthly payments before 5th of every month would fetch similar returns?

9 replies on this article “2 accounts”

  1. Dear Nitin, The RD is not liable to TDS but the interest received from RD is taxable income. Hence the interest from your RD ‘ll be taxed @ your slab rate. So the Rd ‘ll perform poorly than mly investment in PPF.

    There is more to it. As you said – Started Rd on 11th Feb 2012 & Rd matured on same date next year i.e. 11th Feb 2013 & then you deposit the full 1L Rs. in PPF, you are at loss for the interest in PPF account for the month of Feb 2013 as the investment was done after the cut off date i.e. 5th of every month.

    In case of PPF, the most beneficial approach is to try to invest the max. amount between 1st to 5th april at the start of FY to earn full year interest.



  2. Nitin – Hold on Hold on.

    There may be no tax deducted at source (no TDS) but you are supposed to declare this income and pay tax ==> Even a 10% return will put you behind. Assuming you dont need this money for longer duration go with PPF.

    1. NITIN RAWAT says:

      Dear Justgrowmy money,

      Thanks for the valueable information.

  3. The math is very simple and obvious.

    If both investments are not taxed then the higher return (in this case RD) comes out as the winner. Am I missing something here?

    Note that even a 10% tax (and cess) will make the PPF investment a better one!

    1. NITIN RAWAT says:

      Dear justgrow my money,

      Yes, In RD there is no Tax at maturity as Intrest is less than 10000 pm in an year.
      Therefore i am assuming RD is best amoung 2 and then invest in PPF.

      Can please clearify the intrest on PPF during the year is simple interest or compounding?
      I think in RD its compunding monthly thats why its giving better return?


  4. NITIN RAWAT says:

    Dear Ashal,

    I have a query on this. Please assist me.

    Please check the both examples below.

    1. Open a RD account for 1 year on 11th Feb 2012 and start depositing 8000 pm @ 9.25% with fatch me 1,00,908 and then i deposit this max 1,00,000 on PPF account on Feb 2013.
    In that case i got int @ 9.25% and i assume there would be not tax at maturity. Saved 1,00,908 – 96,000 = 4908

    2. Instead of opening RD account i am monthly depositing 8000 to PPF account and getting Simple interst of 8.6%.

    Plz advise which method will be best to depositin PPF account. 1) Make a RD of a year and then transfer amount at maturity or 2.) directly paid the amount montly in the PPF account.


  5. Dear Ajinkya, If you want to know the actual difference, please calculate on your own in a exl sheet. Regarding RD & investing the same either at the start of FY or at the end of FY, Please do note, for the current Rd, you ‘ll get the benefit of higher rates but next time after 1Y, when you ‘ll go for RD, the same high rates ‘ll not be there.

    In my view – if your cashflow permits, try to invest one lump sum at the start of FY. else for your own ease, invest at your own time.



  6. Ajinkya Darshane says:

    thanks a lot! still i have some doubts, i want to know the exact difference in returns between case A and case B, can u plz explain it by giving an example? I knw i need to pay tax on RD aft maturity but if i come under lowest tax bracket, considering todays high interest rate scenario, do u still think it is not a good idea?

  7. Ajinkya – Looking independently there are about 3 or 4 scenarios investing in PPF:

    A) Invest on/around April 1 each year so you money earns full interest all year
    B) You treat PPF as an EMI and pump about Rs. 8300 each month for 12 months
    C) Whenever you get a chance you push money to PPF ensuring you maximize (if possible) before Mar 31 each year.
    D) Invest only by around Mar 30 each year which means this amount will earn full interest from Apr (for the next FY). This is same as case A but delayed by ~ 1 year.

    The best scenarios are the same as the order above. If you open a RD and then move money at the end of the year you pay tax on the matured amount – Instead push that same amount every month into PPF!

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