Difference Between PPF and Fixed Deposit: Which is a Better Investment?

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Difference Between PPF and Fixed Deposit: Which is a Better Investment?

Difference Between PPF and Fixed Deposit: An Overview

Planning for your future is difficult, especially when you are young and have many expenses. But, if you don’t start saving money now, you will have to work harder when you grow older and retire sooner. The good news is that different options are available for savers of all age groups. 

If you are someone who wants peace of mind in your retirement time, then these two investment options might be just what you’re looking for – PPF and FD. These two financial products can easily help people save money for the future. Both schemes have pros and cons; therefore, it is essential to understand the differences between PPF and FD before choosing one. Keep reading to know more about these two investment schemes and choose wisely. 

What is a PPF Account?

PPF, or Public Provident Fund, is a government-sponsored long-term fixed-income savings plan. It provides tax advantages as well as set and assured returns. It is one of the tax-saving tools available under Section 80C of the old Income Tax Act. The PPF account has a 15-year term and cannot be terminated early unless specific conditions are met. However, after five years, the account holder can withdraw a portion of the funds. You can remove 50% of your amount from the previous fiscal year's end. 

Key Features of PPF: 

  • The Public Provident Fund, or PPF, is a government-sponsored long-term savings plan.
  • You can deposit up to 150,000 per year in PPF and benefit from Section 80C tax concessions.
  • PPFs have a 15-year lock-in term, although you can take partial withdrawals after a certain number of years.
  • The total investment, interest received, and maturity amounts are all tax-free.
  • Post offices, nationalised banks, and private banks provide PPF account opening services.
  • NRIs cannot open PPF accounts. Following the announcement issued in October 2017, if they had a PPF account when they were residents, that account would have been closed as of the day they became NRIs.

What is a Fixed Deposit Account?

Fixed deposits (FDs) are one of the most straightforward financial products, with significantly higher interest rates than conventional savings accounts. Interest builds up on the deposited funds over a predetermined period and decides by the provider.  Seniors get high-interest rates on their FDs. You may immediately liquidate your FD and obtain the cash in an emergency.

Key Features of Fixed Deposits

  • You may earn interest with a fixed deposit, which is a secure investment.
  • Fixed Deposits provide assured returns and no chance of losing the initial investment.
  • Fixed Deposit returns are relatively stable compared to other investment plans.
  • The law imposes a tax on all interest gains over 40000 from fixed deposits. But you claim the tax deduction on interest. 
  • You are eligible for top-up loans secured by a fixed deposit.

Differences Between PPF and Fixed Deposit

Investments in FDs and PPFs are pretty convenient for investors. But there are some significant distinctions between them. 

Topics Fixed Deposits PPF
Issuing authorityNBFCs and BanksGovernment of India
Investment Amount There is no limit during investments in FDs. PPF has a limit of upto 1,50,00 rs for a financial year. 
TenureThe fixed deposits have flexible terms. Investors in FDs can select the term that best suits their needs. FDs can work for anything from seven days to ten years.

A PPF has a 15-year lock-in period. After completion, you can withdraw the total amount.

Additionally, there is a choice to prolong the term by increments of five years following maturity.

EligibilityAll Indian citizens, including residents, non-residents, and those of Indian ancestry, are entitled to book an FD.Indian Residents can open for PPF.
Interest RateFD interest rates range from 5% to 7% annually, depending on the bank selected. The ROI for the company's FDs is more significant and can vary from 10 to 13%.The Indian government sets the ROI of PPF, which is now 7.1% every year.
Loan FacilityThe loan against FD is available. On continuous FDs, the loan amount may not exceed 75% of the deposited amount. For quasi FDs, the loan amount is significantly less, at around 60% of the entire amount invested.The PPF must be locked for a minimum of three years before one can borrow from it.  
Premature withdrawalFDs are more liquid assets since you may withdraw your money anytime.The lock-in period for PPF is 15 years. PPF is a significantly less accessible option due to the lengthy lock-in period, particularly if you want immediate money. However, after investing for seven years, you can start making partial withdrawals.
Tax benefits on investmentFixed deposit interest is subject to taxation. However, some tax advantages are available if you choose a five-year tax-saving FD.PPF is a common tax-saving strategy since payments are eligible for a deduction of up to Rs. 150,000.


PPF Account vs Fixed Deposit: Which is a Better Investment? 

A one-time lump sum investment is necessary to open a tax saver FD. This investment will produce respectable returns if you manage such a commitment, and it's only sequestered for five years. You can make as many PPF deposits as you'd like, but each one must be at least Rs. 500 and cannot exceed Rs. 1.5 lakh every year. Therefore, PPF is an attractive choice for you if you are the kind that enjoys regular deposits. You can deposit more cash when you receive it.

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Wrapping Up

Throughout this article on PPF vs FD, we have furnished you with a detailed comparison between the two. It was great, right? With all the information you received in this article, it should be much easier for you to take a good decision about your future. PPF is one of the most significant schemes of all time, but it has its share of flaws. That makes FD an equally good option. Therefore, when choosing between these two products, you must weigh your options and see which one suits you the best. As far as everything else is concerned, such as the employer’s contribution or maturity options, both are worth checking out.

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