Why Using RD for PPF Investment Could Be Costing You Big Money

Do you save in a Recurring Deposit (RD) every month, only to transfer the maturity amount to your Public Provident Fund (PPF) account in April?

At first glance, this looks like a clever move — earn RD interest for a year and still enjoy full-year PPF interest.

But here’s the catch: this strategy could be silently draining thousands of rupees from your future corpus.

In personal finance, small leaks compound into big losses over time.

Let’s break this down step by step and see why direct PPF contributions before the 5th of every month almost always beat the RD route.

Table of Contents

1. How PPF Interest Works (and Why Timing Matters)
2. Why RD Feels Like a Smart Strategy – But Isn’t
3. The Real Cost: Taxation and Delayed Compounding
4. Monthly PPF vs RD→PPF: Real Numbers, Real Difference
5. A Case Study: Ravi’s RD vs PPF Mistake
6. Key Myths Busted – What Most Investors Get Wrong
7. The Smarter Strategy for PPF Investors
8. Conclusion: The Simple Rule + Why a CFP Can Help

1. How PPF Interest Works (and Why Timing Matters)

PPF is one of the most trusted, tax-free investment options in India, with a current interest rate of 7.1% per annum (as of August 2025).

But here’s the part many people forget — PPF interest is calculated monthly on the lowest balance between the 5th and the month-end.

This means:

• If you invest before the 5th of the month, you earn interest for the entire month.
• If you miss this window, you lose a month’s worth of interest.

In other words, the earlier you invest, the longer your money works for you.

Isn’t that what every investor wants — their money working harder each month?

2. Why RD Feels Like a Smart Strategy – But Isn’t

Let’s be honest — RD seems attractive because it feels like we are “double dipping.”

You earn interest on your RD for 12 months, then move it to PPF and still get interest for the whole year. Win-win, right?

But here’s what we forget:

• RD interest is taxable. If you are in the 30% tax slab, your post-tax return falls from ~7% to just ~4.9%.
• PPF compounding is delayed by a year. Each monthly installment loses an entire year of tax-free compounding.

So instead of double benefit, you are actually taking a detour that costs you — silently.

3. The Real Cost: Taxation and Delayed Compounding

Imagine you invest ₹10,000 per month in RD for a year. After maturity, you move it to PPF.

• RD interest is taxed at your slab rate.
• Your PPF contribution earns interest only from next year onward.

Compare this to someone who invests ₹10,000 directly in PPF before the 5th every month:

• They earn tax-free interest for the entire year.
• Their compounding starts right away — no one-year delay.

Over 15 years, this small timing difference snowballs into a ₹35,000+ difference in maturity value — and that’s assuming RD and PPF interest rates are equal.

In reality, RD rates are usually lower, so the gap gets even bigger.

4. Monthly PPF vs RD→PPF: Real Numbers, Real Difference

Here’s a side-by-side comparison for someone investing ₹1,20,000 a year (₹10,000 per month):

Year	Direct Monthly PPF (₹)	RD→PPF Route (₹)	Difference (₹)
1	1,24,615	1,23,233	1,382
5	7,18,060	7,10,097	7,963
10	17,29,890	17,10,708	19,182
15	31,55,679	31,20,687	34,993

And if you invest just ₹5,000/month, you’d still lose nearly ₹17,500 over 15 years.

So ask yourself: why gift this money to the taxman when you can make it work for your own goals?

5. A Case Study: Ravi’s RD vs PPF Mistake

Meet Ravi. Like most salaried investors, he put ₹10,000 in RD every month and transferred it to PPF in April.

He thought he was being disciplined.

After 10 years, Ravi discovered his friend Meera — who simply invested ₹10,000 into PPF before the 5th of every month — had ₹20,000 more in her PPF account than him.

The difference?

Meera started compounding earlier, avoided RD taxation, and let PPF’s tax-free magic work uninterrupted.

6. Key Myths Busted – What Most Investors Get Wrong

Myth 1: Lump sum in April is always better.

✅ True only if you already have cash ready. Otherwise, monthly deposits before 5th are best.

Myth 2: RD helps you earn extra before PPF.

❌ False. RD interest is taxable, and delayed PPF compounding wipes out any extra RD gain.

Myth 3: The difference is too small to matter.

❌ Over 15 years, you lose ₹35,000–₹50,000 or more, depending on your tax bracket. That’s a vacation, a gadget, or even a SIP boost gone!

7. The Smarter Strategy for PPF Investors

So what should you do?

• If you already have a lump sum ready in April, invest it right away.
• If not, invest directly into PPF before the 5th of every month.

This way, you:

✅ Maximize tax-free interest

✅ Avoid RD taxation

✅ Simplify your finances — no RD maturity tracking

Sometimes, the smartest strategy is also the simplest.

8. Conclusion: The Simple Rule + Why a CFP Can Help

In personal finance, detours usually cost money.

The RD-to-PPF route may feel clever, but it quietly robs you of compounding benefits and subjects you to taxation.

Stick to the golden rule: PPF before 5th = maximum benefit.

And if you feel unsure about structuring your savings, working with a Certified Financial Planner (CFP) can help you align your cash flow, avoid such traps, and stay on track toward your long-term goals.