PPF vs FD – Which one is better for investment?

Public Provident Fund (PPF) vs ¬†Fixed Deposit (FD) – These –02 are the amongst the best saving instruments. Both are considered to deliver guarantee on capital and are marked the safest. But people are confused as to which works best for them. In this article I will be focusing on the key difference between the two for better understanding of the schemes which is tabulated below:

Basic difference between PPF and FD

Public Provident Fund (PPF) Fixed Deposit (FD)
1. Undertaking PPF is a government regulated scheme which is saving cum tax saving instrument and is considered to be very safe and reliable. FD is regulated by private and public sector banks and RBI or Reserve Bank of India
2. Duration PPF has a specific locking period of 15 years. This is constant for any sum of money.

On maturity, the PPF period can be extended for multiple of 5 years.

FD does not have any stipulated locking period, but the term duration of investment is fixed. FD is suitable for people who would like to opt out before maturity of the investment.
3. Interest Rate Interest rate is uniform across the country but the interest rate is subject to periodic reviews by the government. In 2016 the interest rate dropped from 8.7% to 8.1%. The interest rate varies from banks to bank. At present it ranges anything between 7%-8.75%. It fluctuates with RBI regulations. Bank like SBI interest rate is 7.50 %.
4. Investment amount An account can be opened with a minimum value of INR 500 and maximum 1.5 lakh beyond which will not entertain any tax benefit. /12 instalment per year A minimum of INR 1000 is required for a FD. However there is no such fixed limit.
5. Account opening One can open a PPF account with a Government regulated bank or Post Office. Fixed deposit account can opened in both Government as well as private and public sector banks.
6. Nominee One or more nominees are allowed per account. Minors are allowed to open an account by their parents and guardians. Only one nominee is allowed per account.
7. Premature withdrawal Only one withdrawal and 50% of the invested amount per year is allowed in case of emergency requirements. The withdrawal is allowed only after the sixth financial year. Pre-term withdrawal will incur a loss in the interest rate. It is generally 1% less than the basic interest offered by the bank. The penalty varies from bank to bank.
8. Loan facility Loan is available from the third year to fifth year at the rate of 2% interest. Loan is available for almost 80-90% of the invested amount which runs as a collateral with the FD account.
8. Tax benefits An amount of upto one lakh is exempted from tax under the 80C rule. FD also has tax saving benefits through the Tax Saver FD policy and has benefits upto one lakh but a five year locking period is taken into consideration.
9. Maturity Tax saving The interest incurred at the end of term is not taxable. This is a huge advantage as tax rate in India is 30%. FD interest is taxable after maturity. Banks incorporate TDS during the term period at 20% per annum for those without PAN number and otherwise 10% rate above one lakh.

Also see:  Fixed deposit vs Recurring deposit to find out another best investment option.

For people who are aiming to save tax, PPF is a good saving instrument. Fixed deposits are generally adopted for people who want a good return but unsure about long term saving as pre-term options are more preferable than PPF policy which are more stringent. This list only for a quick reference and it is best suggested to refer the government websites and talk to bank personnel in details before investing the money.