To ensure a secure future for ourselves, we indulge most of our time in deciding the right kind of investment. An investment which has maximal return rate at low risk with an additional bonus of tax saving is given the greater preference. Here, we have compared PPF and Fixed deposits, two of the most common investment options, to find out which is a better investment option and why.
PPF vs Fixed Deposit: Tax Benefits
As far as tax benefits are considered both PPF and Fixed Deposit are liable to a tax deduction of INR 1.5 Lakh under Section 80C. Thus, when considering a scenario of PPF vs. Fixed Deposits, an informed choice should be made, reviewing all other factors.
Fixed Deposits vs PPF: Ease
People do not like to go with policies with complicated/complex account opening process. However, both FD and PPF can be opened online or at a bank with the same ease. Here, both of them score equal marks.
PPF vs. Bank Fixed Deposit: In Terms Of Lock-in Period
Fixed Deposits have a maturity period set by the beneficiary of the Fixed Deposit account. The duration or lock in period of fixed deposit can be anywhere between 5 to 10 years. PPF, on the other hand, has a fixed maturity period of 15 years. The sum invested in PPF is locked for 15 years and can only be withdrawn completely after completion of the time period. Fixed Deposit is more flexible in terms of offering the account holder an advantage to choose the duration of the investment.
PPF vs. Fixed Deposits: Initial Investment Amount
In the case of Fixed Deposit, there is no maximum limit for the initial investment amount. Banks and companies accept a large investment amount as per the present policy. The minimum amount needed to start a Fixed Deposit is 1000 INR.
PPF, on the other hand, is a limited investment amount per annum. The amount should not exceed a maximum of 1.5 Lakhs for PPF. The minimum amount that needs to be invested, however, is 500 INR per year.
PPF vs. Bank FDs: Rate of Interest
Fixed Deposit is either a Bank Fixed Deposit account or Company Fixed Deposit. The rate of interest on Bank Fixed Deposits depends on the beneficiary's bank return rate. Thus, when investing in fixed deposits, there is a range of choices offered to an individual regarding different interest rate. Fixed deposits come with marginal or no risk factor.
When it comes to PPF, it is a government monitored investment. The return rate is fixed by the government for each financial year.
It is seen that the rate of interest offered by PPFs is slightly better than Fixed deposit returns. So, return wise, I would any day prefer PPF over any Fixed deposit scheme.
However, when it comes to time period/lock-in period, Fixed deposits are a better form of investment. You do not need to wait for 15 years to withdraw your amount.
PPF vs FD: Withdrawal Before Maturity
Fixed Deposits have a permanent lock-in period as set by the beneficiary of the account. So withdrawal before maturity is liable to a fine set by the bank you invested in. PPF is more flexible in this respect. It allows premature withdrawal to a limited amount after the 5th financial year onwards. Thus for emergency withdrawal before maturity, PPF is a better option.
PPF is more flexible in this respect. It allows a premature withdrawal to a limited amount after the 5th financial year onwards. You are even allowed to withdraw the entire sum deposited under PPF, but under certain conditions without paying any penalty.
If you have a good amount of saving, which you can use for any emergency period, you can go with PPF. Otherwise, you can split your investment in 1:1 ratio.
Should You Invest in PPF or Fixed Deposits?
For individuals having large monetary assets who want to go for a short term investment for a comfortable lock -in period, should consider fixed deposits. But an investor who wants to go for low risk, long term investment that will aid during retirement, should go for PPF. This is because the annual limit for investment set by the government will ensure that there is not a huge loss in case of interest rates falling. Plus, the withdrawal policy has also become more flexible from 2016. Not to mention, the return on maturity is high.
Since both Fixed Deposit and PPF are liable for similar tax benefits, investing in PPF or FD is equally advantageous in those terms.
My personal view on PPF vs FD: Invest 80 percent of your investment in PPF and remaining 20 percent in FDs.