Public Provident Fund (PPF) vs Fixed Deposit (FD): Which is best?

Depending on an individual’s funding targets, mounted deposit (FD) and Public Provident Fund (PPF) will be wonderful choices for saving and investing. Before making a selection, buyers ought to have in mind the distinctions between the 2 varieties of accounts as a result of they’ll each provide tax benefits and the prospect to earn curiosity in your investments.

Mumbai-based tax and funding professional Balwant Jain mentioned PPFs are greatest for these on the lookout for long-term financial savings with tax advantages and a protected funding choice. FDs, however, give extra flexibility and liquidity. 

PPF contributions are certified for tax deductions underneath Section 80C of the Income Tax Act. The curiosity earned and the maturity quantity are tax-free. This is the one debt instrument that enjoys an exempt-exempt-exempt (EEE) standing.

Investing in financial institution mounted deposits is taken into account to be protected and is a well-liked funding software. The post-tax return on such investments is mostly decrease than the financial institution’s provided rate of interest “Individuals in greater tax brackets can not declare the TDS again by submitting their Income Tax Return (ITR), leading to a decrease post-tax return from mounted deposits,” said Amit Gupta, MD, SAG Infotech.

Public Provident Fund (PPF) vs Fixed Deposit (FD): Interest rates

The current interest rate on PPF is 7.1 percent (for the July-September quarter). The government announces the rate every quarter. Interest rates on FDs typically vary from 3.5% to 7.5% annually. 

How is the interest on FDs and PPFs calculated?

Regarding PPFs, the interest that needs to be accrued or compounded is carried out once a year. In the case of fixed deposits, either simple interest or compound interest is used to determine the interest rate.

Public Provident Fund (PPF) vs Fixed Deposit (FD): Liquidity

If someone needs to take money out of an FD before it matures, they will be penalised. PPF permits partial withdrawals upon the completion of five years of investment. However, after the whole 15-year period has expired, a complete withdrawal is permitted. “If you are looking for liquidity then opt for FD depending on the requirement as it offers various tenors ranging from seven days to ten years. In the case of PPF, the tenure is quite long, 15 years. It’s best suited for retirement corpus,” mentioned Balwant Jain.

Public Provident Fund (PPF) vs Fixed Deposit (FD): Risk

In the case of FDs, the Deposit Insurance and Credit Guarantee Corporation (DICGC) protects your cash as much as ₹5 lakh per depositor per financial institution. PPF can also be a low-risk funding selection as a result of it’s absolutely backed by the federal government.

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Updated: 10 Jul 2023, 02:52 PM IST