Sep 202015

PPF vs. FD

Public Provident Fund and Fixed Deposits are both investment tools available in India with their set of benefits.  In fact, both the investment options are safest in terms of risk coverage and offer a decent rate of return.  Quite often, those with some extra income wonder which option is better than the other.

They both have some similarities as well as a set of differences from each other.  In this article, we would try to find out various features of both the investment tools and help you figure out which of these would be best suited for ayour investment needs.

PPF vs. FD

Advantages of Fixed Deposits over PPF

  • The lock-in period of FDs is not as high as that of PPF. In PPF, your money is locked for 15 years, whereas the lock-in period of FD may range from sevent to ten years and may vary from bank to bank.
  • The rate of interest for fixed deposites are a little higher than that of PPFs. PPF offers you an interest rate of 8.7 per cent, whereas rate of interest for FDs may be a little higher and may again depend from bank to bank.
  • PPF investments are compounded annually. On the other hand, FD investment is compounded quarterly.
  • FDs are a better option if you have a lump sum amount coming in at regular intervals and you are not a tax payer.

Advantages of PPF over Fixed Deposits

Tax deduction in one aspect where PPF stands out as compared to any other investment tool in India, not to mention FDs.  If you are investing in PPF all of you investment amount (up to the maximum limit of deposit), the returns coming out of the investment and the maturity amount, all are completely exempted under section 80C of income tax.  This is one reason, why most of the starters in small saving investments opt for a PPF account first and then think about any other option, if they are spared with extra money.

Should you have FDs despite having a PPF Account?

Yes, off course.  If you already have a PPF account and still have savings in hand, you should definitely look for good return tools like FD and RDs.  They not only save you from risk, but also grow at a decent rate of interest.  The investments made in your PPF account would take care of the tax saving part and if you are left with extra investment, FDs would serve as a money tree for you.

Ideally, if you are a young investor, you should first go for a PPF account and then look for options for FDs.  This is purely a personal opinion and you may work it out other way around.  It’s just a matter of personal choice and conditional planning.

Last but not the least; you should put more of your money in FDs if you do not fall within the tax slabs.  At the end of the day, PPF offers a little low rate of interest along with locking your money for 15 years.  Whereas, if you invest the same money in FDs, you can get better returns and your money would be locked-in for smaller tenures.

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