PPF v/s FD – Which is better?

In the world of fixed-income securities, i.e., avenues that pay a guaranteed rate of interest, Public Provident Funds (PPFs) and fixed deposits (FDs) are quite popular. Both these investment avenues give guaranteed returns on your investment and help you create a corpus for your future. But, when you compare PPF v/s FD, which, do you think, is better?

Both PPF and FD are different types of investment instruments that have their respective pros and cons. Let’s understand them first and then figure out which is better.

What is PPF?

Public Provident Fund is a long-term saving scheme with a term of 15 years that you can extend in blocks of 5 years. PPF requires you to invest every year to keep the account active. The rate of interest is guaranteed and fixed by the government. You get tax benefits on the amount invested, returns earned, and the maturity proceeds.

What is FD?

Fixed deposits are where you deposit a sum of money for a specified tenure of your choosing. The FD interest rate is determined based on the term of the deposit and your age (senior citizens enjoy a slightly higher interest rate). The rate is guaranteed, and you can receive it as and when it is paid during the tenure of the deposit. You can also choose to accumulate it till the maturity of the FD.

Fixed deposit v/s PPF – The difference

As mentioned earlier, FD and PPF differ from one another in various aspects. These aspects include the following –

Points of difference PPF FD
Investment amount You can open a PPF account with a minimum amount of Rs.100 The minimum amount depends on the financial institution offering the FD. Some banks allow a minimum amount of Rs.100, while others might require a higher deposit amount
Tenure 15 years and extendable in blocks of 5 years Usually ranges between 7 days and 10 years
Rate of interest Determined and reviewed by the government. Currently, for the July – September 2021 quarter, the interest rate is 7.1% The rate depends on the financial institution, your age, and the term selected. At present, it ranges between 4% and 8%
Maximum investment Up to Rs.1.5 lakhs in a financial year. You can make up to 12 investments in a year No limit
Regularity of investment A minimum investment of Rs.500 is needed every year to keep the account active Once deposited, you don’t have to make further deposits over the chosen tenure
Safety PPF is a government-backed investment instrument. Accordingly, it is considered to be extremely safe Bank deposits are insured up to Rs.5 lakh. Higher amounts of deposits are not secured against risks like bankruptcy of the issuing bank. Moreover, no security is offered by NBFC deposits
Tax benefits Investment into PPF is tax-free under Section 80C. The interest earned and the benefit received are also completely tax-free. Investments into the 5-year bank and post-office FDs are only tax-free under Section 80C up to Rs.1.5 lakh. Interest earned is taxable if you are aged below 60 years. For senior citizens, however, interest income, up to Rs.50,000 is tax-free under Section 80 TTB
Premature withdrawal Partial withdrawals are allowed from the 7th year, free of cost, subject to limits Premature withdrawal is allowed, but it usually attracts penalties

Which is better – PPF or FD?

The choice depends on you. If you want to invest for long term and liquidity is not a concern, you can choose PPF and create a tax-efficient corpus. If, however, you want to deposit for a shorter tenure, you can go for FD.

You should assess your financial goals and investment needs to make a suitable choice. Understand the difference between PPFs and FDs and then pick one or both for your financial planning and build a diversified corpus.

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