Public Provident Fund (PPF) vs Fixed Deposit(FD): Which is healthier for traders

When evaluating the PPF and FD as funding choices in India, it is necessary to contemplate varied elements. 

Advantages of PPF

The PPF, being a government-backed financial savings scheme, supplies a number of benefits. 

1)Firstly, contributions to PPF are eligible for tax deductions underneath Section 80C of the Income Tax Act, which can assist cut back your tax legal responsibility.  Additionally, the curiosity earned and the maturity quantity are tax-free, making it a lovely choice from a tax perspective. 

2)PPF can also be thought-about a protected funding since it’s backed by the federal government, offering a way of safety to traders.

3)“PPF provides a 7-year lock-in interval and a 15-year deposit period, making it an interesting long-term investing choice. An individual could proceed to take action indefinitely in blocks of 5 years after the preliminary 15 years have handed,” said Vinit Khandare, CEO and Founder, MyFundBazaar

4)Another advantage of PPF is that it allows for partial withdrawals and offers loan facilities after the completion of the 7th year, providing some degree of liquidity during emergencies or financial needs, said Amit Gupta MD, SAG Infotech.

5)A PPF account can be opened with a minimum investment of Rs. 500 and a maximum investment of Rs. 1,50,000 every fiscal year.

6)For a period of 15 years, individuals may deposit money into their PPF accounts at least once annually.

On the other hand, FDs offer their own set of advantages.

Advantages of FD 

1)They provide flexibility in terms of tenure options, allowing individuals to choose a time frame that aligns with their specific needs and financial goals. 

2)The interest rates that apply to fixed deposits remain constant at the rate that the individual has booked the FD, independent of changes in the market. This guarantees fixed returns upon maturity, said Khandare

He added that depending on the investment goal, a person may choose between short- and long-term fixed deposits. The term can be for as little as seven days or as long as ten years.

3)“FDs also offer a regular income stream in the form of fixed-interest payments, which can be useful for individuals seeking a predictable cash flow,” stated Amit Gupta.

Moreover, FDs are simply accessible and will be opened with varied banks and monetary establishments, making them a handy funding choice, he added.

4)Most banks present a better mounted price of curiosity to aged of us. As a end result, it permits senior residents to save lots of extra money with out taking any dangers.

5)Tax-saving mounted deposit plans can support in lowering revenue tax obligations. Section 80C of the Income Tax Act of 1961 permits traders to assert tax exemptions as much as a most of Rs. 1,50,000.

6) Cumulative FDs that compound curiosity each six months, three quarters, or month-to-month. This ensures larger returns on the principal sum.

“However, it is necessary to contemplate the drawbacks as properly. While PPF provides tax advantages, FDs are topic to tax on the curiosity earned as per the person’s tax slab. Additionally, FD returns could not all the time outpace inflation, which suggests the actual worth of financial savings would possibly lower over time. It’s essential to take inflation into consideration when evaluating the potential returns from FDs. Furthermore, FDs should not assured by the federal government, though deposits as much as Rs. 5 lakh per financial institution are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC),” stated Amit Gupta MD, SAG Infotech

Ultimately, the selection between PPF and FD is determined by particular person preferences, monetary targets, danger tolerance, and liquidity necessities. PPF fits people searching for long-term financial savings with tax advantages and a safe funding choice. On the opposite hand, FDs provide extra flexibility and liquidity, making them appropriate for people who could require entry to their funds within the shorter time period. It’s all the time advisable to judge your particular wants, contemplate the professionals and cons, and seek the advice of a monetary advisor to make an knowledgeable choice that aligns along with your monetary aims.

PPF’s newest rate of interest

The Public Provident Fund (PPF) is without doubt one of the well-liked long-term funding schemes backed by the Government of India. PPF provides an rate of interest is 7.1%.

Latest financial institution FD rates of interest

Axis Bank, State Bank of India, and ICICI Bank provide ain rates of interest starting from 3% to 7.1% on tenures maturing in 7 days to 10 years, whereas HDFC Bank offers rates of interest starting from 3% to 7.25% on these deposits to normal clients.

Disclaimer: The views and proposals made above are these of particular person analysts, and never of Mint. We advise traders to verify with licensed consultants earlier than taking any funding selections.

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Updated: 14 Jun 2023, 01:56 PM IST