Fixed Deposit (FD) Vs Public Provident Fund (PPF) – Which is a Better Option?

Traditionally, Fixed Deposit is considered to be the best investment because of the fact that it offers risk-free returns to the investor. But the fact is that the dynamics of the market is changing and people have started exploring new investment options as well.

In recent time, Public Provident Fund has come up as an attractive option and today, we are going to share the details about PPF as well as FD so as to help you in making the right investment choice.

What is PPF?

It is important to understand what you are investing in and hence you must know what PPF is all about. To begin with, PPF stands for Public Provident Fund and it is a long term saving or investment plan which is backed by the government. The interest rates are decided here by the government and it basically offers a way to plan your retirement to the people who are self-employed.

Basic Features of PPF

There is no age limit to enter the PPF however, you must be at least 18 years old. In addition to this, the minimum investment in PPF is Rs 500 per annum. The maximum investment can’t exceed Rs 1.5 lakh in a year.

Over here, we are assuming that you have a basic knowledge of Fixed Deposit and with this assumption, we will move forward and compare the Fixed Deposit with PPF. This will help you in understanding the pros and cons of both the investment types and you will be able to choose where to invest.

Fixed Deposit

Points of Differentiation between Fixed Deposit and Public Provident Fund

In this section, we are going to share some of the points of differentiation between these two investment modes. This will help you in understanding which one is actually betters well as which one is more suitable for you.

Lock-In Period – In Fixed Deposit, there is nothing like a lock-in period. This means that you can liquidate your fixed deposit as per your requirement and you will receive cash as and when you need it. The usual period for the Fixed Deposit can vary between 7 days and 10 years. However, in PPF, the maturity period is 15 years. This means that you will have to wait for a long period of time before you get hold of your money.

Returns – The return in Fixed Deposit is dependent on the RBI and it changes with the change in repo rate and reverse repo rate. As per the recently observed trend, the changes to the fixed deposit rates have been revised every quarter. However, the interest rates have remained between 7% and 8%. Talking about the PPF, the interest rates are declared by the government and the interest rates for PPF are usually higher than the interest rates that you get for Fixed Deposit.

Liquidating the Investments – If you opt for a fixed deposit then you can go ahead and liquidate your investments at any time. The process is really easy and it takes just a couple of minutes to get the funds into your account. The process to liquidate the FD is now available online as well. If you opt for PPF then you need to wait 5 years before you can withdraw your money. In addition to this, there is cap on the amount that you can withdraw even after 5 years.

Tax Saving – In terms of tax savings, you cannot claim any tax deductions if you opt for a regular FD. For getting any type of tax benefit, you need to opt for tax saver FD and these tax saver FD has a lock-in period of 5 years. For PPF, you can get the tax benefits on your investment. Talking about the maximum limit, for both PPF and Tax Saver FD, the limit is Rs 1.5 Lakh. It should also be noted that if you have a normal FD and if you are earning an interest income of over Rs 10,000 then you will be taxed for what you earn over and above Rs 10,000.

The extent of Investment – In a Fixed Deposit, there is no limit of investments. You can invest a minimum of Rs 5000 and the maximum amount has no limit. However, for PPF, the limit of this amount is Rs 1.5 Lakh. Hence, if you wish to invest in PPF, you won’t be able to invest more than Rs 1.5 Lakh.

Loans and Credits – Both the options offer you the facility to get loans. If you have Fixed Deposit then the good part is that the bank can treat is as collateral and offer you a loan of about 80% to 90% of the amount of Fixed Deposit. In case of PPF, you can obtain a loan against PPF after the 3rd

So, which is better between FD and PPF?

This honestly depends on you. There are several factors that you need to consider. The first factor that you need to consider before making the investment is the time period for which you wish to invest the money. If you think you do not wish to lock in your funds for a long period of time then you must opt for FD however, if you are planning for retirement and if the time period of investment is no bar then you must opt for PPF. In addition to this, what you can do is that you can invest an annual amount of Rs 1.5 Lakh in PPF and rest of the amount can be invested in FD. This way, you can avail the maximum tax benefit from PPF. You can even explore other options for investment depending on your risk appetite.

To conclude this, we would say that consider all the factors like liquidity, the rate of return, the time period of investment and tax deductions before making a choice. Once you have all the answers, make your choice and start investing.