PPF v/s FD: Which is better for your business?
What's the story
Public Provident Fund (PPF) and Fixed Deposits (FD) are two popular investment options in India. Both have their own benefits, making them suitable for different financial goals. While PPF is a long-term savings scheme backed by the government, FDs are offered by banks and give fixed returns over a specified period. Knowing the difference can help you make informed decisions about where to park your money.
#1
Understanding PPF and its benefits
PPF is a government-backed long-term investment scheme with a tenure of 15 years. It offers attractive interest rates, which are usually higher than those of traditional savings accounts. The minimum annual investment in PPF is ₹500, and the maximum is ₹1.5 lakh. The interest earned is tax-free, making it an attractive option for long-term wealth creation.
#2
Exploring fixed deposits
Fixed Deposits are offered by banks and financial institutions for a fixed duration, ranging from seven days to 10 years. They offer guaranteed returns at a fixed interest rate for the entire tenure. Unlike PPF, there is no upper limit on how much you can invest in an FD. However, the interest earned on FDs is taxable as per the individual's tax slab.
#3
Comparing liquidity options
Liquidity is another important factor to consider when choosing between PPF and FD. PPF has a lock-in period of 15 years with limited premature withdrawal options after the completion of certain conditions. On the other hand, FDs provide more flexibility as you can choose shorter tenures according to your needs and break them prematurely (though with penalties).
#4
Evaluating risk factors
Both PPF and FD are considered low-risk investments as they guarantee returns without market-linked risks. However, PPF has an added advantage of being government-backed, which assures safety against default risks associated with private banks or institutions offering FDs.