PPF or FD: Which is better for NRIs?
What's the story
For non-resident Indians (NRIs) looking to invest in India, Public Provident Fund (PPF) and Fixed Deposits (FDs) are two popular options. Both offer stable returns and come with their own pros and cons. While PPF provides long-term investment with tax benefits, FDs offer flexibility in terms of tenure and liquidity. Knowing the differences can help you make an informed decision based on your financial goals and risk appetite.
#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 traditional savings accounts. The interest earned on PPF is tax-free, making it an attractive option for long-term investors. However, since PPF has a lock-in period, it is ideal for those who can commit their funds for a longer duration without needing immediate access.
#2
Exploring FD's flexibility
Fixed Deposits provide more flexibility than PPF in terms of tenure, ranging from as short as seven days to 10 years or more. You can choose the duration according to your financial needs and liquidity requirements. While FDs also provide guaranteed returns at fixed interest rates, they do not offer the same tax benefits as PPFs. However, they are ideal for those looking for short-term investments or regular income.
#3
Comparing interest rates
Interest rates on PPF are set by the government every quarter, and are usually competitive with other fixed-income investments. Currently, PPF rates hover around 7.1% per annum (subject to change by the government). On the other hand, bank FD rates vary by bank but generally range between 5% and 7% per annum depending on market conditions and the tenure selected by the investor.
#4
Assessing tax implications
Investments in PPF qualify for tax deductions under Section 80C of the Income Tax Act up to ₹1.5 lakh per financial year (per individual account holder). The interest earned is also exempt from tax, which makes it a tax-efficient investment option. On the other hand, while interest earned on bank FDs is taxable as per the investor's income tax slab rate, there are no such deductions available for them.