In India, when it comes to savings and investing money, Fixed Deposits and Public Provident Fund are amongst the top options.
Fixed Deposit or FD (also called Term or Time deposit) as the name suggests, is a bank deposit, for a fixed sum, rate and tenure. The amount payable after the maturity is known at the time of deposit itself and is quite easy to calculate.
FD calculator is used to check the interest and maturity amount that the depositor will get when the tenure ends.
Public Provident Fund or PPF comes with a guarantee from the Government of India and has been a vehicle of choice for a fixed, long term and tax-free return.
It was started in the year 1968 for the benefit of investors for savings and investment and since then has remained one of the best investment options for generations of Indians.
The unique aspect that makes it an efficient and effective investment vehicle is its substantially long tenure and compounding which works its magic for 15 years.
PPF calculator helps in establishing the amount that an investor will receive after the given tenure.
The table describes the features, benefits and differences between FD & PPF-
|How and where to open||All banks in India offer the facility. Both online and offline options are available||Can be opened at a Post Office or a bank which is allowed to accept PPF deposits. Online account opening facility is available with select banks|
|Investment amount||Minimum amount varies from bank to bank. No maximum limit||Minimum annual deposit amount is INR 500 and Maximum is INR 1,50,000|
|Taxability||Interest earned is fully taxable as per the slab rate||The amount invested during the tenure, interest earned during the tenure and amount at the time of maturity – all three are exempt from tax. It is an E-E-E category investment|
|Loans||Loan up to 80-90% of FD amount is available. The interest rate is generally 1-3% above the deposit rate||Loans available after the 3rd year till the end of 6th Financial Year. Amount of loan is a maximum of 25 % of balance at the end of last two years of the year when the loan is applied for|
|Lock in Period & Tenure||There is no Lock In period. Maturity ranges between 7 days to 10 years||For first five years, the money is blocked. The duration of PPF account is 15 years. (it is extendable, though)|
|Withdrawals||Premature withdrawal is available with a small penalty and also subject to other conditions||Withdrawal is eligible after completion of 5 years from end of Financial Year of first deposit. The maximum available amount is 50% of the previous financial year’s balance or 4th Financial Year’s, preceding the year of withdrawal request, whichever is less|
|Interest Rates||Different banks have different rates across maturities. Rates vary and depend on the tenure of the FD and the amount as well. Senior citizens get a higher rate of interest||Rate is announced by Ministry of Finance, Government of India, every quarter. Interest is compounded annually and paid on March 31 every year|
|Status under Section 80 C||Only Tax Saving FDs are eligible for consideration , up to INR 1,50,000. Normal FDs are not eligible for exemption||Entire contribution is eligible for deduction, up to INR 1,50,000|
|Nomination||Nomination facility is available||Nomination facility is available-for one or more persons with defined share as well|
|Extension of account||Once FD is booked for a particular tenure, extension at the same rate post its maturity is not permissible. In case of auto- renewal, rate of interest applicable would be the one existing at that time||Three options are available at the time of maturity:
1. Closure of account
2. Keeping the account active without fresh deposits
3. Continue or extend the account with fresh deposits. This can be done for a block of 5 years each
FD or PPF?
Rather than this one or the other one, the pertinent question should be based on an investor’s risk capability, fund requirements, liquidity objectives and time duration of the goals.
While Fixed Deposits are lucrative from short to medium term perspective as they offer sound interest rates, immediate loan facility and easy liquidity, PPF is a dependable saving and investment avenue from retirement perspective, offering comfort, cushion and compounding!
With proper planning and goal based investing, both short term and long term objectives can be met. Investors should follow an asset allocation based approach and they can choose to invest in both Fixed Deposits and PPF for their financial security and wealth creation journey.