PPF v/s FD: Which is more accessible for today's youth?
What's the story
Public Provident Fund (PPF) and Fixed Deposits (FDs) are two popular investment options for young investors in India. Both of them offer different benefits and cater to different financial goals. While PPF is a long-term savings scheme backed by the government, FDs are offered by banks and provide fixed returns over a specified period. Knowing their accessibility and suitability can help young investors make informed decisions.
Long-term focus
Understanding PPF's long-term benefits
PPF is a long-term investment option with a lock-in period of 15 years. It is ideal for those who want to build a corpus over time without the need for premature withdrawals. The government backs PPF, making it a risk-free investment. The current interest rate on PPF is around 7.1%, which is higher than most savings accounts but lower than some other investment options.
Short-term flexibility
Flexibility offered by fixed deposits
Fixed deposits offer more flexibility than PPF, as they can be opened for shorter durations, ranging from seven days to 10 years or more. This makes them suitable for young investors who may not want to commit funds for long periods. However, the interest rates on FDs are generally lower than those on PPF and vary depending on the bank and tenure.
Tax considerations
Tax implications of PPF and FDs
Investments in PPF come with tax benefits under Section 80C of the Income Tax Act up to ₹1.5 lakh per financial year. The interest earned and maturity amount are also tax-free. On the other hand, interest earned on FDs is taxable as per the investor's income slab, which may reduce overall returns.
Initial investments
Minimum investment requirements
To open a PPF account, one has to deposit a minimum of ₹500 every financial year. The maximum contribution allowed is ₹1.5 lakh per year. For FDs, banks may require a minimum deposit amount ranging from ₹1,000 to ₹10,000, depending on their policies. This makes both options accessible to young investors with varying budgets.