PPF v/s FD: Which is better for investors?
What's the story
Public Provident Fund (PPF) and Fixed Deposits (FDs) are two popular investment options in India. While both offer different benefits, liquidity is an important factor for many investors. Knowing the liquidity of these options can help you make better investment decisions based on your financial needs. Here, we look at the liquidity of PPF and FDs, and what they mean for you as an investor.
PPF insights
Understanding PPF liquidity
PPF has a lock-in period of 15 years, which means you can't withdraw your money before that period, except in certain cases. However, partial withdrawals are allowed after the completion of five financial years. This makes PPF less liquid than other investment options but provides the benefit of long-term savings with attractive interest rates.
FD Insights
Fixed deposits: A liquid alternative
Fixed Deposits are way more liquid than PPF. While FDs also have a tenure (ranging from seven days to 10 years), you can break them prematurely by paying a penalty (which is usually a small percentage of the interest earned). This feature makes FDs an attractive option for those looking for flexibility with their investments.
Penalty details
Early withdrawal penalties in FDss
When you break a fixed deposit before maturity, you incur penalties that vary from bank to bank. Usually, these penalties are in the range of 0.5% to 1% of the interest earned on the deposit amount. This means that while you get access to your funds before maturity, you lose a little of the interest. Knowing these penalties helps in planning your finances.
Tax considerations
Tax implications on withdrawals
Both PPF and FD have different tax implications when you make early withdrawals. While interest earned on PPF is tax-free, premature withdrawal of FD may attract TDS if your income exceeds the taxable limit. It's important to consider these factors when planning your investments, as they can affect your overall returns significantly.