Aug 182015

PPF vs. RD Which one is better?

When it comes to investing your money, you can just invest it anywhere based on the little knowledge you have of the scheme.  You have to do a lot of research and understand the implications and benefits of the saving tool you are investing in.  Two of the most favorite investment tools in India are Public Provident Funds and Recurring Deposit.  In this article, we would cover both of them and try to distinguish between them so that you may relate to the one which is better for you, in short or long run.

PPF vs. RD – Which one is better

In terms of rate of returns

Recurring deposits offer a rate of 7 to 8.7 per cent compounded annually, whereas PPF offers an impressive rate of 8.7 per cent compounded annually. The rate of interest of RD may vary from bank to bank, however the rate of interest of PPF is fixed for all financial institutions.

In terms of additional benefits

In terms of additional benefits, both the investment tools offer loan facility for the investments made towards the subscription.

Tenure of Investment

The maximum and minimum tenure of investment in Recurring Deposit is 1 year and 10 years respectively.  On the other hand, PPF has a fixed tenure of investment of 15 years after which if the subscriber wishes, can extend the term of investment in multiples of five years.

Maximum and minimum investment

An investor can deposit as high as Rs 1.5 lakhs in PPF account and he/she has to deposit a minimum of Rs 500 per year in their PPF account.  On the other hand, there is no maximum limit of deposits in recurring accounts.  You can get an RD for any higher amount you want, provide the bank is offering that amount.  The minimum amount of RD one can have is Rs 10.

In terms of premature withdrawals

You can’t avail premature withdrawals in RD in normal conditions.  If you somehow need to withdraw the money in emergency, you would have to pay some penalty that may vary from bank to bank.  In PPF, you can opt for a premature withdrawal of up to a certain percentage of the accumulated amount from the seventh year of investment and you would not be charged any penalty or fee for that premature withdrawal.

In terms of Tax Benefits

Tax benefits are one benefit that PPF investments offer and recurring deposits don’t.  If you are investing in PPF, you would get complete tax benefits.  This means, if you are investing in PPF, the investment would be completely free from taxes along with the interest accrued and the final amount you would get at the time of maturity.

RDs do not enjoy any tax benefit at all.  Whatever amount you pay in recurring deposits would be taxed.  However, you don’t have to file a TDS for recurring deposits.

By the above comparisons, we can make out that both the investment tools are somewhat comparable to each other in more or less the same manner.  However, PPF is a little beneficial than RD, if this is your first investment altogether.  If you already have a PPF amount and there is a limit on the maximum you can invest in PPF, you can certainly consider RD as a second investment option.

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