545 total views, 13 views today
The Public provident fund and fixed deposits are the two safest and popular forms of savings. Though both are investment instruments, the differences between PPF and FD are huge. Each instrument comes with its own set of features and benefits. In this article, we will discuss in detail about both the instruments.
What are PPF and FD?
Public Provident Fund (PPF): It is one of the safest and secure investment options in India. Under the PPF account, the money gets locked in for a time period of 15 years, and you can earn compound interest on the same, which is tax-free. However, this can be extended for up to 5 additional years. With the help of this investment scheme, you can build a corpus for your child’s education. Currently, the interest rate offered on PPF is 7.1 percent. A PPF account can be easily opened in a nearby bank branch or post office. Few banks also allow you to open PPF account online. The minimum annual amount that needs to be deposited is Rs 500, while the maximum amount is Rs 1.5 lakh in a financial year. Either father or mother can open a PPF account on behalf of a minor. Both the parents are allowed to open a separate account in the name of the same minor.
Fixed Deposits ( Fds): A fixed deposit is also one of the most popular and secure investment instruments as it comes at a higher rate of interest than a regular savings account and offers guaranteed returns. Currently, fixed deposits offer you an interest rate of 8-9%. This does not change even in a financial crisis or volatility. In addition, you can open a fixed deposit account easily. You can also opt for a tax-saving FDs as it helps you to save tax on the interest earned. According to the Income Tax Act, investing in tax-saving fixed deposits can help you claim an income tax deduction under section 80C.
Features and Benefits of PPF and Fixed Deposits
Here’s a brief comparative analysis of PPF and FDs:
Tenors: In PPF, your amount gets locked in for 15 years. No other tenor is offered to customers in PPF, so the amount remains locked in for 15 years. However, the tenure can be extended for up to 5 additional years.
The tenure offered in FD ranges from 12 to 60 months. So, you get the flexibility to choose the tenure for FDs, which you cannot with a PPF.
Premature withdrawal: If you invest in PPF, you can withdraw the amount after completion of the 5th year. But only a limited amount can be withdrawn.
You have the option to withdraw an FD prematurely at any time. Also, a loan against your fixed deposits is available.
Loans: You can avail loans against your PPF only after the completion of 3 years. However, loan against FD is available at any point in time.
Tax benefits: Tax benefits are available on both PPF and FD under Section 80C. In the case of FDs, the investment needs to be made for a minimum period to avail the income tax benefit.
Deposit amount: The minimum annual amount that can be deposited is Rs 500, while the maximum amount is Rs 1.5 lakh in a financial year. With FDs, there is no fixed limit.
Rate of interest: The Government sets the rate of interest for PPF. Currently, the interest rate offered on PPF is 7.1 percent. In the case of FD, the interest rate is set by the individual bank or NBFC.
So, we can see that both investment schemes have their own set of features and benefits. FD comes with more flexibility as compared to PPF. Hence, you can give more preference to FD. But if you want to invest for a longer period, then PPF is the best option. But remember, PPF comes with a lock-in period of 15 years. So, before you choose your investment instrument, compare both of them, and check for pros and cons. Select the saving scheme which suits you the best.