FD vs PPF

What are FD and PPF?

• FD or fixed deposit is one of the most popular investment instruments in India. The reason for its popularity is based on its interest rates and guaranteed returns. The FD interest rate is higher than a regular savings account and generally ranges between 8% to 9% p.a., which depends on banks. The FD interest rate does not change at the time of market volatility and financial crisis. In addition to this, you can easily open a fixed deposit account.

• PPF is considered as one of the secure and safest investment options. The money gets locked in for 15 years in a PPF account and compound interest on it, which is free of tax. Moreover, after completion of 15 years, one can extend this plan for five more years. With the help of PPF, one can easily build a corpus for the education of his/her child. Currently, the PPF interest rate is 7.1%. For a minor his/her father or mother can open a PPF account. In addition to this, both the parents are eligible to open a PPF account separately for the same minor.

PPF vs FD Features 

Public Provident Fund (PPF) Features

The Public Provident Fund (PPF) is a government investment plan ideal for retirement planning or children's education due to its extended lock-in period.

• Nature & Goal: It is a government-based investment designed for long-term financial planning, such as retirement or a child's education.
• Deposit Method: Requires the investor to maintain the account by paying an annual contribution (premium).
• Deposit Limit: The minimum annual deposit is ₹500, with a maximum of ₹1,50,000 in one financial year.
• Accessibility: Accounts can be easily opened at a nearby post office or bank, with many banks offering online account opening.
• Lock-in Period: Features a long lock-in period compared to other investment plans, ensuring long-term savings.

Fixed Deposit (FD) Features

Fixed Deposits (FDs) are investment plans known for providing higher interest returns compared to a normal savings account.

• Nature & Goal: An investment where a lump sum amount is deposited for a predetermined, fixed period.
• Deposit Method: Requires a single, lump-sum deposit upon opening. Unlike PPF, to invest more money, the investor must open a new FD account.
• Lock-in & Tenure: The money is locked for a specific period, and the investment starts accumulating Return on Investment immediately for the chosen duration.
• Returns: The interest paid on an FD is typically higher than a savings account and is fixed for the policy tenure

Tenure of PPF vs FD

When we talk about PPF, the policy tenure is lengthy, generally of 15 years. The PPF does not offer any flexibility in the tenure, which is long. Therefore, PPF generally is used to accumulate the amount for retirement. It provides guaranteed returns and is one of the safest investment options.

Alternatively, the Fixed Deposits are flexible in their tenure. The investors of FD are free to choose the tenure as per his/her requirement. The tenure of FD ranges between 7 days to 10 years.

Interest Rate of PPF vs FD

Investment planning generally involves comparing the Return of Investment (ROI) for various financial instruments to understand what will give better profit. The highest interest rate of FD ranges between 6% to 8% p.a., which depends on the chosen bank. The NBFCs or corporations attract a higher ROI, which can range between 10% to 13% p.a. While the ROI of PPF is decided by the government of India and currently it is 7.1% per year.

Partial Withdrawal of PPF vs FD

The main goal of long-term investment instruments is wealth accumulation. Therefore, the policies to withdraw money from them are strict. The lock-in period of PPF is five years and no withdrawals are allowed until this period passes. In addition to this, the amount that one can withdraw from a PPF account is as well limited.

The Fixed Deposits give more control when we talk about money withdrawal. One can withdraw any amount any time he/she needs to. Moreover, if one wants to close an FD account prematurely, he/she can.

Tax Benefits on PPF vs FD

One of the crucial parts of investment planning is tax-reduction. Both PPF and FD offer tax benefits under Section 80C of the IT Act. However, PPF provides more benefits. For Fixed Deposits after five years of the lock-in period, the money that is invested in FD can easily be claimed for deduction with an upper limit of Rs.1, 50, 000.

The interest that is earned on FDs ranges from 0 to 30% depending on this bracket of income tax one falls. The PPF provides deductions on the deposit amount of up to Rs.1.5 lakh.

Investment Amount of PPF vs Investment Amount of FD

There is no limit on the maximum amount that one can invest in FD. Since FDs are one - time investment plans, most of the people invest a large amount in them. Alternately, PPF has a limit of Rs. 1, 50, 000 per year.

Loan Facility of PPF vs FD

One can avail of the loan against FD. On cumulative FDs, the amount of loan can be 80% to 90 of the deposited amount. However, for non-cumulative FDs, the amount of loan is slightly lower and is around 60% and can go up to 75% of the total amount that is deposited. On the other hand, with PPF one cannot take a loan against it until the money is locked-in for at least three years.

Conclusion

One can select an investment instrument as per his/her current and future financial planning and requirements. With wealth growth, protection of the hard-earned money is also necessary. On one hand, where FD is more flexible than PPF, the other hand, PPF is the best for accumulating corpus for future needs. So, the investor decides to select a plan as per his/her requirements and future needs.