Fixed Deposit Vs. PPF: Which is a better option?
Fixed Deposits (FDs) and Public Provident Fund (PPF) are two of the main options for risk-averse investors. FDs offer assured returns and are highly liquid, giving you the flexibility to decide the tenure. Alternatively, PPFs are backed by the government and offer tax-free returns along with assured income for your retirement. Both schemes have different eligibility, lock-in period, interest rate, minimum deposits, and more.
Here are the prime differences between FDs and PPF that can help you choose the right investment scheme:
What is an FD?
A fixed deposit (FD) is an investment instrument that allows you to park your savings and earn interest on the sum. FDs have a fixed tenure, and the interest rate is defined for the entire term.
Tax-saving FDs with a minimum five-year lock-in period also get tax exemption up to Rs. 1.5 lakhs under Section 80C.
What is a PPF?
PPF is a government-backed, non-market linked scheme that gives assured returns. PPF has a minimum lock-in period of 15 years, extendable by another five years. Partial withdrawals (up to 50% of the accumulated corpus) are permitted from PPF after seven years.
PPF investments up to Rs. 1.5 lakh are tax-free under Section 80C. The interest earned and the PPF maturity amount are also tax-exempt.
FD vs. PPF – Which is a better option?
|Basis of Difference||FDs||PPFs|
|Who can contribute?||Indian residents, Hindu Undivided Family (HUF), Trust Corporation Firms, and Non-resident Indians (NRIs) can open an FD.||Any Indian resident, irrespective of age, can open a PPF account. You can also open a PPF account for your minor children to get tax benefits.|
|NRI investors||NRIs can open an FD in India.||NRIs cannot invest in PPF.|
|Return||FDs offer a fixed return, depending on the bank. Typically, the interest rate varies between 2.9% to 6.5%.||PPF offers an assured return according to floating interest rates, currently at 7.1%.|
|Risk||FDs are not linked to the market. Hence, there is no risk. Further, FDs also get insurance, securing you against bank default.||The scheme is regulated by the government and offers assured returns without the risk of market volatility.|
|Maturity period||The maturity period of the FD depends on your preference. You can choose an FD tenure between 7 days-10 years (some banks also allow FDs of 20 years)||A PPF account has a fixed maturity period of 15 years, extendable by another five years.|
|Minimum and maximum investment||The minimum deposit amount is Rs 100, and the maximum varies from bank to bank.||The minimum contribution limit for PPF is Rs. 500 annually. The maximum contribution is Rs. 1.5 lakh. A maximum of 12 contributions can be made in a year.|
|Tax benefits||Tax-saving FDs with a five-year lock-in period get tax exemption up to Rs. 1.5 lakhs under Section 80C.||PPF deposits avail of tax benefits up to Rs. 1.5 lakh under Section 80C. Further, the accumulated amount and interest are also tax-free at the time of maturity.|
|Premature withdrawals||You can make partial withdrawals in some FDs. FDs also give you a loan against the accumulated sum.||You can make partial withdrawals after seven years with some restrictions. You can also take loans in the third and sixth year of opening the account, subject to some conditions.|
If you want to create a diversified portfolio, invest in FD or PPF and couple it with a mutual fund online investment aligned with your risk tolerance. Mutual funds online allow you to invest through the lump sum or distributed mode (called Systematic Investment Plan (SIP)).
Use the Tata Capital Moneyfy app to invest in mutual funds online.