PPF or FD: Which is better for your financial goals?
What's the story
Public Provident Fund (PPF) and Fixed Deposits (FDs) are two popular investment options in India. Both provide a safe way to grow your money, but they differ in terms of returns, liquidity, and tax benefits. While PPF is a long-term investment with government backing, FDs provide flexibility in terms of tenure. Knowing these differences can help you choose the right option depending on your financial goals.
#1
Understanding PPF's long-term benefits
PPF is a government-backed savings scheme with a minimum tenure of 15 years. It offers attractive interest rates, which are usually higher than those of regular savings accounts. The interest earned on PPF is tax-free under Section 80C of the Income Tax Act, making it an attractive option for long-term savings. However, the funds deposited in PPF cannot be withdrawn before maturity, except under certain conditions.
#2
Exploring FD's flexibility
Fixed Deposits provide more flexibility than PPFs as they can be opened for tenures ranging from seven days to 10 years or more, depending on the bank's policies. While FDs usually offer lower interest rates than PPFs, they are still higher than regular savings accounts. One can also choose between cumulative or non-cumulative options based on whether they want regular interest payouts or a lump sum at maturity.
#3
Comparing tax implications
Both PPF and FDs have different tax implications that investors should know of. The interest earned on PPF accounts is tax-free, but it falls under the overall limit of ₹1.5 lakh per financial year under Section 80C. On the other hand, interest earned on FDs is taxable according to the investor's tax slab rate, unless the investor opts for TDS deduction at source.
#4
Assessing liquidity needs
Liquidity is an important factor when choosing between PPF and FD investments. Since PPF has a lock-in period of 15 years with limited withdrawal options before maturity, it is not ideal for those requiring quick access to funds. In contrast, FDs offer more liquidity as one can choose shorter tenures or break them prematurely (with penalty charges) if required before maturity without much hassle compared to early withdrawals from PPF accounts.