Fixed Deposit (FD) vs Public Provident Fund (PPF): Which is a better investment?

Are you torn between investing in Fixed Deposits (FDs) or Public Provident Funds (PPFs)? Both investment options offer guaranteed returns and low risk, but they have distinct differences in interest rates, tax benefits, liquidity, and more. In this comprehensive article, we’ll explore the key aspects of FDs and PPFs to help you make an informed decision based on your investment goals.

Interest Rates: PPF Offers a Slight Edge

  • Fixed Deposits (FDs): Offer fixed interest rates ranging from 5.3% to 7.75% per annum, depending on the financial institution and tenure.
  • Public Provident Funds (PPFs): Provide a variable interest rate set by the Indian government, currently at 7.1% per annum.

Tax Benefits: PPF Wins with EEE Category

  • Fixed Deposits (FDs): Interest earned is taxable based on individual tax slabs.
  • Public Provident Funds (PPFs): Exempt from income tax under the Exempt-Exempt-Exempt (EEE) category, making them more tax-efficient.

Lock-in Period and Liquidity: FDs Offer Greater Flexibility

  • Fixed Deposits (FDs): Shorter lock-in periods ranging from a few days to several years, allowing for greater liquidity and flexibility in withdrawals.
  • Public Provident Funds (PPFs): Longer lock-in period of 15 years, with partial withdrawals allowed after the completion of the 7th year, making them less liquid than FDs.

Minimum and Maximum Investment: PPF Has Specific Limits

  • Fixed Deposits (FDs): Varying minimum investment amounts, which can be higher than PPFs, with no specific limit on the maximum investment.
  • Public Provident Funds (PPFs): Minimum investment of ₹500 per year and a maximum investment of ₹1,50,000 per year.

Risk and Return: PPF Offers Stable Returns

  • Fixed Deposits (FDs): More susceptible to market fluctuations, which can affect their returns.
  • Public Provident Funds (PPFs): Backed by the government, offering more stable returns and making them attractive for long-term investors.

Choosing between a Fixed Deposit (FD) and a Public Provident Fund (PPF) ultimately depends on your financial goals and preferences. FDs offer greater liquidity and flexibility, while PPFs provide tax benefits and stable returns. Consider your investment horizon, risk tolerance, and tax implications before making a decision. By understanding the key differences between FDs and PPFs, you can make an informed choice that aligns with your financial objectives.

Reference: Source 1 // Source 2 // Source 3