PPF vs FD: Depending on a person’s specific financial situation and investment goals, both a fixed deposit (FD) and a public provident fund (PPF) can be excellent savings and investment options. PPFs offer a variable rate of interest determined by the Indian government, whereas FDs offer a fixed rate of interest for a predetermined period of time. Before making a decision, investors should consider the differences between the two types of accounts, as both can provide tax advantages and the opportunity to earn interest on investments.
When comparing the PPF and FD as investment options in India, it is necessary to take a number of factors into account.
Benefits of PPF
As a government-backed investment plan, the PPF offers several advantages.
1) First, contributions to the PPF qualify for tax deductions under Section 80C of the Income Tax Act, thereby reducing your tax liability. Additionally, both the interest earned and the maturity amount are tax-free, making it a tax-friendly option.
2) PPF is considered a safe investment because it is supported by the government, providing investors with a sense of security.
3) “PPF provides a 7-year lock-in period and a 15-year deposit duration, making it an attractive option for long-term investing. After the initial 15 years, a person may continue to do so indefinitely in 5-year increments, according to Vinit Khandare, CEO and Founder of MyFundBazaar.
4) Another benefit of the Public Provident Fund is that it permits partial withdrawals and offers loan facilities after the completion of the seventh year, providing some liquidity during emergencies or financial requirements, according to Amit Gupta, managing director of SAG Infotech.
5) A PPF account can be opened with a minimum annual investment of Rs. 500 and a maximum annual investment of Rs.
Individuals may deposit funds into their PPF accounts at least once per year for 15 years.
In contrast, FDs offer their own set of benefits.
PPF vs FD: Benefits of FD
1) They offer flexibility in terms of tenure options, allowing individuals to select a period of time that aligns with their particular requirements and financial objectives.
2) The interest rates applicable to fixed deposits are fixed at the rate at which the individual booked the FD, regardless of market fluctuations. This, said Khandare, guarantees fixed returns at maturity.
He added that a person may choose between short- and long-term fixed deposits based on their investment objectives. The duration of the term can range from seven days to ten years.
3) “FDs also offer a regular income stream in the form of fixed-interest payments, which can be useful for individuals seeking a predictable cash flow,” according to Amit Gupta.
Moreover, FDs are readily accessible and can be opened at a variety of banks and financial institutions, making them a practical investment option, he added.
4) The majority of banks offer senior citizens a higher fixed rate of interest. As a result, senior citizens can save more money without taking any unnecessary risks.
5) Tax-advantaged fixed deposit arrangements can help reduce income tax liabilities. The Income Tax Act of 1961, Section 80C, enables investors to claim tax exemptions of up to Rs 1,500,000.
6) Cumulative CDs with quarterly, semiannual, or monthly interest compounding. This increases the returns on the principal amount.
In addition, returns on FDs may not always exceed inflation, meaning the real value of savings may decline over time. When assessing the prospective returns of FDIC-insured deposits, inflation must be considered. Furthermore, FDs are not backed by the government, but deposits up to Rs. 5 lacks per bank are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC), according to Amit Gupta, managing director of SAG Infotech.
Will the Government Revise PPF Interest Rates in June 2023: Anticipating Change
PPF vs FD: The current PPF interest rate
The Public Provident Fund (PPF) is one of the Government of India’s most prominent long-term investment schemes. The interest rate offered by the PPF is 7.1%.
The choice between PPF and FD ultimately depends on personal preferences, financial objectives, risk tolerance, and liquidity needs. PPF is suitable for individuals seeking long-term tax benefits and a secure investment option. In contrast, FDs offer greater flexibility and liquidity, making them suitable for individuals who may need access to their funds sooner. It is always advisable to evaluate your specific requirements, weigh the pros and cons, and consult a financial advisor before making a decision that is in line with your financial goals.
Recent bank CD and FD interest rates
Axis Bank, State Bank of India, and ICICI Bank offer ain interest rates ranging from 3% to 7.1% for terms maturing in 7 days to 10 years, whereas HDFC Bank offers general customers ain interest rates ranging from 3% to 7.250% for these deposits.
