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Difference Between FD And PPF

Personal Finance

It’s tough to plan ahead when you’re young and saddled with a lot of debt. But if you don’t start saving now, you’ll have to work longer and harder as you get older in order to afford to retire when you want to. Fortunately, savers of varying ages can choose from several viable solutions.

Most people who are interested in investing want to put their money somewhere secure. Investors in India can choose between two relatively risk-free options: the Public Provident Fund and Fixed Deposits, both of which offer a variety of perks and advantages to entice new customers. Low-risk investors can benefit from either financial product.

What Sets FD Apart From PPF

People seeking low-risk investment alternatives can consider opening an FD or a PPF. An advantage of opening a Fixed Deposit (FD) account is the certainty of the returns you may expect to get. The interest rate earned on the deposit amount is unaffected by changes in the market. With a fixed deposit, you may pick a term that works best for you and your needs. An FD can be opened at any financial institution, including banks, non-banks, and money markets.

Since the Government of India backs the Public Provident Fund (PPF) system, there is no risk involved in investing in it. The lock-in periods for PPFs are longer than those for FDs. You can take advantage of a PPF and open it at any financial institution to reduce your taxable income.

Learning the distinctions between the two will aid in making a wise choice.

What is a PPF, and Who is it Intended For?

The government backs long-term investment schemes called Public Provident Funds (PPFs). Accounts have to be renewed annually at a predetermined rate to keep them operational. This PPF account can be used to save for retirement or other long-term goals, such as purchasing a home or funding a child’s education.

Investments in the PPF are ideal for those who want stable returns over the long term. The initial PPF commitment duration is 15 years, with a further 5 years available for extension. You can also deduct your PPF contributions from your taxable income under Section 80C.

PPF Advantages and Features

Having a PPF account allows you to deduct contributions from your taxable income, which is one of the major advantages of the scheme. Any bank, non-banking financial institution, or post office can open a PPF account.

Consider these advantages as you weigh the pros and cons of a PPF investment:

  • Because the government of India backs the PPF, investors face less of a threat when putting their money in it.
  • Allotment of nominees is permitted.
  • Demand drafts, wire transfers, checks, and cash are all acceptable deposit options.
  • The plan has a 15-year time frame.
  • Deposits can be made for as little as Rs. 500.
  • One of the perks of this plan is that it’s tax deductible.

What is an FD, and Who Does it Serve?

Financial institutions like banks and non-banking financial corporations (NBFCs) typically provide fixed deposits as a means of saving and investing. An FD calculator can help you determine the exact amount you will receive at maturity and the interest you will earn on your investment. An FD’s interest rate is typically between 8% and 9%, which is greater than the rate offered by most banks and NBFCs for standard savings accounts. So, if you’re looking for a safe way to put money down, a fixed deposit is a good alternative. Investing in such a way ensures a steady income stream, regardless of how the stock market performs.

FD Advantages and Features

Because market changes do not affect FD interest rates, they are a reliable investment option. Section 80C of the Income Tax Act of 1961 allows for tax savings through the use of tax-saving FDs.

The following are some advantages to putting money into a fixed deposit:

  • Some types of fixed deposits qualify for tax exemptions.
  • Senior citizens get a higher rate of interest than other people.
  • A fixed deposit (FD) can be reinvested for a steady stream of interest payments over time.
  • Benefits include assured returns.
  • Flexible term choices are available to meet your needs.

How are FD and PPF Interest Rates Calculated?

For PPF: Interest rates are set by the Finance Ministry. This interest rate is disclosed every three months. Interest accrues on the PPF balance and is distributed annually on March 31st. It would be helpful if you put money into your PPF account on or before the 5th of every month. This is because the interest accrued each month is determined by how much money was in the account between the 5th and the last day of that month.

For a FD: A fixed deposit has a rate of interest that is established at the time the account is opened. The interest rate on the deposit will not change at any time. You can use tools like an online FD calculator to determine the FD interest rate.

PPF versus FD: Which is Better for Investing?

There is no risk involved with either a Fixed Deposit or a Public Provident Fund, and both can provide respectable returns once they reach maturity. Fixed Deposits are preferable to Public Provident Funds due to greater term flexibility and somewhat higher interest rates, but the decision ultimately comes down to personal preference.

Fixed Deposits are a superior short-term investment alternative to PPFs since individuals can access lending facilities against them immediately rather than after a three-year waiting period.

Those with the luxury of time on their side might diversify their investment portfolios by putting money into both Fixed Deposits and PPFs.

To read more such articles, visit the Piramal Finance website.