PPF or FD: When to invest in which?
What's the story
Public Provident Fund (PPF) and fixed deposits (FDs) are two popular investment options in India. Both offer unique benefits, making them suitable for different financial goals. While PPF is a long-term investment with tax benefits, FDs offer flexibility and shorter tenures. Knowing the right time to invest in either can help you maximize returns according to your financial needs.
#1
Understanding PPF benefits
PPF is a government-backed savings scheme with a lock-in period of 15 years. It offers attractive interest rates, which are usually higher than regular savings accounts. The contributions made toward PPF are eligible for tax deductions under Section 80C of the Income Tax Act. This makes it an ideal option for those looking to save on taxes while building a corpus over time.
#2
When to choose fixed deposits
Fixed deposits offer the flexibility of choosing tenures ranging from seven days to 10 years. They are ideal for risk-averse investors who want guaranteed returns without market fluctuations. Unlike PPFs, FDs do not have a minimum investment period, making them suitable for short-term financial goals or emergency funds. However, the interest rates on FDs may vary according to bank policies and market conditions.
#3
Comparing liquidity options
Liquidity is another important factor when choosing between PPF and FD. PPF has a lock-in period, but partial withdrawals are allowed after the completion of six years, subject to certain conditions. On the other hand, premature withdrawal of fixed deposits is usually allowed after paying a penalty or a reduced interest rate for the withdrawn amount.
#4
Tax implications of each option
Both PPF and fixed deposits have different tax implications that investors must consider. While the interest earned on PPF accounts is tax-free, the interest earned on fixed deposits is taxable as per the investor's income tax slab rate. Investors looking for tax-efficient investments may prefer PPF due to its tax-free growth feature over the long term.