PPF v/s FD: Which allows partial withdrawals?
What's the story
Public Provident Fund (PPF) and Fixed Deposits (FD) are two popular investment options in India. Both offer unique benefits but differ in terms of liquidity and withdrawal options. While FDs provide fixed returns for a specified tenure, PPF is a long-term savings scheme with tax benefits. Knowing the partial withdrawal features of these instruments can help you make informed financial decisions. Here is how they differ.
#1
Understanding PPF's withdrawal feature
PPF accounts allow partial withdrawals after the completion of the sixth financial year. This means you can access a portion of your investment while keeping the account active. The maximum amount that can be withdrawn is limited to 50% of the balance at the end of the fourth year before withdrawal. This feature makes PPF a flexible option for those needing access to funds without closing their account.
#2
Fixed deposits and liquidity options
Fixed deposits offer more immediate liquidity than PPFs, as they are not bound by long-term commitments, like a lock-in period. However, premature withdrawal from an FD usually results in penalties or reduced interest rates, depending on the bank's policies. Unlike PPFs, FDs do not allow partial withdrawals; you either close the deposit or wait until maturity to access your funds completely.
#3
Tax implications on withdrawals
Both PPF and FD have different tax implications when it comes to withdrawals. Amounts withdrawn from a PPF account are tax-free as long as the account matures after 15 years. In contrast, interest earned on FDs is taxable according to your income tax slab, making it important to factor in taxes when calculating returns from FDs versus PPFs.
#4
Assessing financial goals with PPF and FD
When choosing between PPF and FD, consider your financial goals and liquidity needs. If you need regular access to funds, an FD may be more suitable, despite potential penalties on premature withdrawals. On the other hand, if you're looking for long-term savings with tax benefits and occasional access to cash without closing your account, PPF could be the better option.