How and where to invest money is one of the most researched areas for anyone who has a regular income. Today, the options are as varied as the personality of the investor. However, some forms of investments have stood the test of time. Fixed deposits and Public Provident Fund are very prominent examples.
How are these different? Which one is best for you? Let’s find out!
What Are They?
The basic principle is the same for both FD and PPF – you deposit an amount for a fixed duration and earn an interest on the amount. FD is a bank scheme whereas PPF is a Central Government scheme. However, the similarity ends here. The tenure, lock-in period, interest, and withdrawal policy differ for both.
What Is Their Tenure?
The tenure for FD can vary from 7 days to 10 years. There are many different types of fixed deposits, and the tenure will differ among them. The tenure of a tax-saving FD is five years. The tenure of normal FDs is flexible. They even come with the option of premature withdrawal with a small fee.
The tenure for PPF is 15 years. After this, you can extend it in blocks of five years. As you can see, PPF is a long-term investment option. It was started to offer retirement security for those working in the unorganised sector. Even though the initial target audience were those in the unorganised sector, there are no restrictions on who can invest in a PPF. You are allowed to withdraw funds from the PPF before the tenure is up, but there are limitations on the amount you can withdraw.
Since you are investing the sum for a longer period and the interest gets compounded, you get a huge amount at the end of the tenure.
What Is the Interest That I Will Earn?
The government fixes the rate of interest on PPF, and it currently stands at 8% per annum. The interest rate for FDs varies from bank to bank. It usually lies between 6.5% to 9% per annum. You can easily find a reputed bank that offers the best fixed deposit rates.
The difference lies in the taxability of the interest. The interest earned on FDs is taxable. A tax-saving FD can offer tax exemption, but the interest income is still taxable. However, the interest on PPF and its maturity amount is exempt from taxation.
Which One Offers Better Returns?
Both FD and PPF are low-risk investments with guaranteed returns. Both serve a specific purpose, and you wouldn’t go wrong with either of them.
The maximum amount that can be invested in PPF in a financial year is capped at INR 1.5 lakhs. FDs do not have this restriction. Since you can invest more, the returns are also correspondingly higher. An interest rate calculator India will tell you how much you should invest to gain the desired returns. You can use your FD as collateral for a loan in case of emergencies. You can do this with PPF too, but the PPF should be at least five years old for this.
FDs offer better returns in the short-term since you can invest more at the same interest rate as PPF. However, if you are saving up for retirement or for a really long duration, then PPF is your best bet since it is exempt from tax on all fronts.
