Fixed Deposit vs PPF (Public Provident Fund) is a common dilemma for long-term investors looking to create wealth. Both investment instruments are safe and provide guaranteed returns. However, there are key differences between PPF and FD, with respect to returns, tax implications, lock-in period and liquidity, among other things. Thus, you need to consider these factors before figuring out which is better -PPF or FD.
FD vs PPF
Here are the top differences between PPF and FD to know before investing:
| Feature
|
Public Provident Fund (PPF) |
Fixed Deposit (FD) |
| Type |
Government-backed savings scheme |
Bank or financial institution deposit |
| Interest Rate |
Set by the government, subject to periodic revisions |
Fixed or variable, determined by the bank |
| Lock-in Period |
15 years, with partial withdrawal allowed after the 7th year |
Multiple lock-in periods are available, typically ranging from a few days to several years |
| Minimum Investment |
₹500 per year |
Varies from bank to bank, usually higher than PPF |
| Maximum Investment |
₹1,50,000 per year |
No specific limit; depends on the bank |
| Tax Benefits |
Exempt-Exempt-Exempt (EEE) category investment - interest earned and maturity proceeds are tax-free |
Interest income is taxable; tax deduction under Section 80C for a 5-year FD |
| Risk |
Low risk as it is backed by the government |
Low to moderate risk depending on the credit rating of the bank |
| Liquidity |
Limited liquidity due to the 15-year lock-in period, partial withdrawals allowed |
Generally, more liquid than PPF with the option for premature withdrawal, but may attract penalties |
| Return on Investment |
Moderate returns, typically in line with government securities |
Generally offers returns at par with PPF, but subject to market conditions and interest rate fluctuations |
Benefits of FD vs PPF
Benefits of FD
- Safe investment offered by regulated banks and financial institutions
- You can invest in a bank FD online within a few minutes
- Bank FDs offer a higher interest rate than a Savings Account
- Fixed returns as FD is not dependent on market movements
- Bank FDs provide flexibility of choosing tenure
- You can invest in multiple FDs across multiple banks
- Loan can be taken against a bank FD
- Some banks offer a Credit Card against FD Accounts
- Highly liquid investment that can be withdrawn prematurely
- Section 80C deduction for investments in Tax-Saving Fixed Deposits
- Higher interest offered to senior citizens
- Allow you to nominate a beneficiary who will receive the deposit amount in the event of the investor's demise
Also Read: 5 reasons why Fixed Deposits are favoured by the Indian middle
Benefits of PPF
- Highly secure as the government backs PPF
- Tax deductions under Section 80C of the Income Tax Act available
- Interest and maturity proceeds are tax-free
- Interest rates are generally higher than many other fixed-income instruments
- Interest rate is declared quarterly and remains fixed for the entire tenure
- Lock-in period of 15 years for long-term savings
- Partial withdrawals are allowed after completion of the 7th year
- Loan facility against PPF investments available
- Flexibility in contribution, from ₹500 per year to ₹1,50,000 per year
- Highly stable as PPF is not linked to market fluctuations
- Preferably used as an investment instrument for retirement saving
- Encourages a disciplined savings habit
- PPF Accounts can be transferred from one authorised bank or post office to another without any hassle
Conclusion
Fixed Deposits and Public Provident Funds are two popular investment options that investors with low-risk appetites prefer to put their savings in. You need to carefully assess the benefits and disadvantages of each option before investing. While Fixed Deposits are opted for by investors looking to invest for a few months to a few years, PPF is opted for by investors looking to invest for the long term or preferably those saving for their retirement.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
