PPF or FD: Which is better for the self-employed?
What's the story
Public Provident Fund (PPF) and Fixed Deposits (FDs) are two of the most popular investment options among self-employed individuals in India. Both come with their own set of benefits and drawbacks, making them suitable for different financial goals and risk appetites. Knowing the difference between the two can help you make informed investment decisions. Here's a look at the key differences between PPF and FDs.
#1
Understanding PPF
PPF is a government-backed long-term savings scheme with a 15-year lock-in period. It offers attractive interest rates, which are revised quarterly, but usually hover around 7.1% per annum. The minimum investment is ₹500 per year, and you can invest up to ₹1.5 lakh in a financial year. The interest earned is tax-free, making it an attractive option for long-term wealth accumulation.
#2
Exploring fixed deposits
Fixed deposits are offered by banks and financial institutions for fixed tenures ranging from seven days to 10 years or more. They offer a fixed interest rate for the entire tenure, usually between 5% and 7%, depending on the bank and tenure length. Unlike PPF, FDs do not have a minimum investment requirement but typically require a minimum deposit of ₹1,000 or more.
#3
Comparing liquidity options
One of the major differences between PPF and FDs is liquidity. PPF has a lock-in period of 15 years, with limited partial withdrawals after the sixth year. This makes it less liquid than FDs, which allow premature withdrawal, though with penalties, anytime during the tenure. For self-employed individuals needing quick access to funds without penalties, FDs may be more suitable.
#4
Evaluating tax implications
While both PPF and FD interest rates are taxable, PPF has the added benefit of tax-free returns under Section 80C of the Income Tax Act, up to certain limits. On the other hand, interest earned on FDs above ₹40,000 per annum (for those below 60 years) is subject to TDS deduction at source by banks if PAN details are provided.