PPF or FD? Decode what works best for your goals
What's the story
Public Provident Fund (PPF) and Fixed Deposits (FDs) are two of the most popular investment options in India. While both provide a haven for your money, they differ in terms of maturity payment modes. Knowing these differences can help you choose the right investment option according to your financial goals. Here's how PPF and FDs differ in terms of maturity payments.
#1
Understanding PPF maturity payments
PPF has a 15-year lock-in period, after which you can withdraw the entire amount or continue the account for extended periods. The maturity amount includes the principal and interest earned over the years. You cannot withdraw partial amounts before maturity, making it a good option for long-term savings.
#2
Fixed Deposits: Flexible maturity options
Unlike PPF, fixed deposits offer more flexibility with their maturity options. Banks usually provide tenures ranging from seven days to 10 years, allowing investors to choose according to their financial needs. Upon maturity, investors can either withdraw the funds or reinvest them into another FD. Some banks also provide premature withdrawal facilities with a penalty on interest rates.
#3
Interest rates comparison
Interest rates on PPF are set by the government and change quarterly, currently at around 7%. On the other hand, FD rates depend on market conditions and bank policies, usually ranging between five to eight percent per annum. While PPF offers guaranteed returns, FD rates may vary but could be higher depending on the bank and tenure.
#4
Tax implications of PPF and FD investments
Investing in PPF gives you tax benefits under Section 80C of the Income Tax Act, up to ₹1.5 lakh a year. The interest earned is tax-free as well. However, fixed deposits do not provide similar tax benefits unless you opt for a tax-saving FD with a five-year lock-in period. Regular FDs are subject to TDS on interest earned above ₹40,000 annually for individuals below 60 years of age.