This is a long battle, which is still continued between these two preferred modes of saving. Investors are always confused between these two modes of savings either to invest in Public Provident Fund (PPF) or Fixed Deposit (FD) for gaining higher returns. People have different opinions about these two popular mode of savings. You should always choose the right mode of saving to gain better returns. Though, PPF and FD have their own advantages and disadvantages, but these two mode are most secured way of investing and saving the money.
Public Provident Fund is a long-term investment plan, which you continue for minimum 15 years or more. However, the Fixed Deposit term is more flexible, which varies from minimum 7 days to maximum 20 years. You can choose the term as per your convenience and financial goals. Both the investment options are quite popular among people. Here are some important points, which one should consider to compare before choosing the most suitable mode of investment.
Tax benefits for PPF and Fixed Deposit: The amount you deposit in PPF scheme is eligible for income tax deduction every year under section 80C of income tax act. At the time of withdrawal also tax payers are not liable to income tax.
But, in case of Fixed Deposit, the tax payer is only eligible for income tax deductions if he/she is opting for a 5 years or longer term fixed deposit. Withdrawal before 5 year will be liable to income tax. If you will opt for a fixed deposit of shorter duration such as one year or two years that are not eligible for tax deductions.
Periodic investment in PPF Vs one time investment in Fixed deposit: PPF is linked with periodic investments. A minimum amount of Rs. 500 is also eligible to invest in PPF per year and the maximum limit to invest in PPF in a year is 1.5 lakhs per year. Here, you can deposit money on monthly basis or make one time investment. But more than 12 transactions in a year are not allowed. Whatever amount you deposit in the PPF account should not exceed 12 transactions limit per year.
Fixed deposit is a one time investment. In Fixed deposit you can not make transactions in the same account. Here, everytime you need to invest money in fixed deposit, you are required to open a new account for a new tenure. If you have a lump sum amount and you want to invest it somewhere then going for fixed deposit option is safe and the best.
Interest rate of PPF Vs interest rate of Fixed Deposit: Interest on fixed deposit is taxable in the hand of tax payer. Bank is also liable to deduct the TDS from the interest amount. Whereas, interest on PPF account is free from any tax deductions. You are not required to pay the tax even at the time of withdrawal also. If you consider the post tax rate of interest, then in case of fixed deposit your returns are lower as compared to PPF account returns on your invested money.
Premature withdrawal in PPF Vs Fixed Deposit: In your PPF account you can withdraw the money after 5th year only, which is also limited with an upper cap of withdrawal. Whereas, in case of fixed deposit most of the banks and financial institutions allow premature withdrawal in fixed deposits by imposing penalty on the amount. Although, the penalty percentage or amount varies from bank-to-bank. But, you can get your whole money credited into your account within 24 working hours.
Loan against FD Vs PPF: PPF and Fixed deposits both provide loan facility to the customers, but in different form and on different terms. In PPF account you can borrow a loan from third year onward. In case of fixed deposit you can borrow the loan of upto 90% of the amount in the FD. The interest rate is generally 2% higher than the rate of interest offered on the FD by the bank. It offers more liquidity in the form of taking loan as compared to FD.
Investment amount FD Vs PPF: In PPF you can deposit maximum Rs. 1.5 lakhs in your account per year. But, in fixed deposit the maximum limit to deposit amount per year is much higher. You can deposit upto Rs. 1 crore in your fixed deposit account per year. So fixed deposit offers you higher limit to invest than PPF account.
(Updated on:1 NOvember,2016)