Fixed Deposits

Fixed Deposit Vs Public Provident Fund: Which Is Better?

By admin
12 July 2022
4 mins read

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Fixed Deposit Vs Public Provident Fund: Which Is Better?

Both Public Provident Funds (PPF) and Fixed deposits (FD) are safe and lucrative investment vehicles.

They yield modest but guaranteed returns in the long term and also offer tax benefits. So, it is no wonder countless investors, including those with considerable market portfolios, continue to invest in both PPF and FDs.

If you want to generate returns in a risk-averse manner, these are the top instruments to opt for. However, they do have specific differences. Learning about these differences can help you compare and decide which one is better for you. So, let us dive in!

Key Differences Between PPF and FD

Difference Parameter	Public Provident Fund (PPF)	Fixed Deposit (FD)
*Purpose*	A PPF doubles up as an investment cum tax saving instrument. It allows investors to deposit a lump sum annually or small amounts each month.	Offered by various financial institutions, FDs allow you to invest a lump sum and earn guaranteed returns on it. Unlike PPF, you can only invest a lump sum in a fixed deposit. If you want to start with small amounts, you'll have to open different FDs.
*Liquidity*	The PPF is relatively less liquid than a fixed deposit. A PPF account comes with a lock-in of 15 years when you open it. After 15 years, you can make partial or full withdrawals, depending on your requirement.	FDs are more liquid than PPFs, even though they come with a soft lock-in. If need be, investors can break an FD before maturity by paying a nominal fee and only losing the future interest it would have earned.
*Tenure*	The minimum tenure of a PPF deposit is 15 years.	An FD tenure can range anywhere between a few days to several years, depending on what a financial institution offers.
*Deposit value*	The minimum PPF deposit value stands at Rs. 500. However, you cannot deposit more than Rs. 1.5 lakhs annually in your PPF account.	Typically, investors can start an FD for as low as Rs. 500. Some institutions may set the limit even lower. Also, there is usually no upper limit for an FD deposit.
*Tax benefits*	You don't have to pay any tax when you partially or fully withdraw funds from your PPF account. However, the amount you deposit into your PPF account must be shown as tax-deductible under Section 80C when filing your Income Tax Return or ITR.	You can opt for a tax rebate on fixed deposits of up to Rs. 1.5 lakhs under Section 80C of the ITA. The rest of the amount is subject to TDS at 10% per annum.
*Issuing authority*	The Central Government is the primary issuing and guaranteeing authority for PPF.	Several private and public financial institutions, and companies and corporations, can issue a fixed deposit.
*Interest pay-out*	The PPF interest is paid on the 31^st of March every year in the investor's PPF account itself. After 15 years, they can manually withdraw the interest or principal amount whenever they want.	Depending on your FD opening conditions, a financial institution might pay interest at a fixed interval or at maturity. The interest here automatically gets credited into your linked bank account.
*Overdraft facility*	You can take a loan or overdraw on your PPF account only after the 3^rd financial year of opening it.	You can usually opt for the overdraft facility on your fixed deposit as soon or within a few months of opening one.

Which to pick?

Consider a fixed deposit if you're looking for a short-term and relatively more flexible investment option. But, if you wish to keep your funds safe in a long-term instrument with the benefit of tax savings, go for a PPF. Most risk-averse investors diversify their corpus by investing in both instruments.

Before you go

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