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Difference Between PPF and FD

The majority of investors seeking to invest are looking for a safe place to put their money. The Public Provident Fund and Fixed Deposits are the two most secure investment choices available to Indian investors. Both financial instruments are appropriate for investors with low-risk tolerance.

Meaning of a Fixed Deposit

A fixed deposit (FD), often known as a term deposit, is an investment vehicle that allows consumers to safely store their funds while simultaneously earning interest. An FD's interest rate is always higher than a savings account's interest rate. 

In a fixed deposit account, the interest rate and deposit amount are both fixed throughout the duration of the account, as the name implies. FDs are available from all banks, including commercial and small finance, as well as non-banking financial companies.

Meaning of Public Provident Fund

The Public Provident Fund (PPF) is a government-backed investment and tax-saving tool. The Ministry of Finance introduced this program more than 50 years ago, and it is still popular among investors who prefer to avoid market-related risks. PPF is completely safe because it is backed by the government. 

Although this is the government of India's main offering, some of the country's largest banks also offer it as a product. When compared to India Post's PPF rates, these banks' interest rates for PPF may differ and yield higher interest.

PPF vs. FD 

The table below mentions the difference between PPF and FD

Particulars FD PPF
1) Tenure of the Deposit: You can choose between short-term and long-term fixed deposits depending on your investment objectives. The term might last anywhere from seven days to ten years. The minimum term of a PPF is 15 years. If you like, you can extend it in 5-year increments.
2) PPF vs. FD returns: It is dependent on the investor's preference (regular credit to the associated bank account or on maturity). Every financial year's payment is due on March 31st.
3) Liquidity of the Schemes: Moderately liquid; certain forms of FD allow for early withdrawals. Premature withdrawals are permitted every year beginning in the seventh financial year due to a lack of liquidity.
4) Taxes on the Investment: Under section 80 C, you are entitled to a tax exemption of up to Rs. 1.5 lakh. Income is tax-exempt to the fullest extent possible.
5) Eligibility Criteria for the Schemes: NRIs, residents, HUFs, Trusts, Corporation Firms, and others. Only Indian citizens are eligible.

Interest Calculation for FDs and PPFs

In the case of a PPF, the interest earned on deposits is compounded once a year. This is a set amount for all deposits made in this savings account. There are two methods for calculating interest on fixed deposits: compound interest and simple interest.

You can use tools like the FD Calculator and the PPF Calculator to estimate the maturity amount. The tools are free to use and can be used several times to help investors choose the best option for them based on various FD/PPF rates and tenures. Basic information such as FD interest rates or PPF rates, as well as deposit amount and term, must be entered into the form, after which the calculator will provide the best estimate based on the inputs.

It is crucial to note that the amount determined by these calculators is merely a guideline and not an exact figure.

Access to fixed deposits
of various banks
Invest without opening
a new bank account
Avail high interest rates
of up to 6.5%
OPEN FD ONLINE

Fixed Deposit Suitability

Fixed deposits are a risk-free investment option for anyone looking for a safe investment. Fixed deposit investments have predetermined returns. As a result, market volatility has no impact on fixed deposit returns.

Investors can choose from a variety of market-linked instruments that provide higher returns. They are, nevertheless, linked to a significant level of risk. Investors must also seek out safe investment opportunities in order to achieve balanced financial growth. As a result, if fixed deposits are made with reputable financial institutions, they are safe and provide guaranteed returns.

Public Provident Fund Suitability

PPF investments may be beneficial for investors seeking fixed returns over a long period of time. In addition, PPF has a 15-year lock-in term. As a result, if an investor is satisfied with locking in a portion of their money for 15 years, PPF is a good option. A person's PPF account can also be extended for a period of 5 years at any time during their life.

PPF investments can also be linked to financial goals such as children's education or marriage, property ownership, and more. As a result, anyone can include this instrument in their fixed income portfolio as a long-term investment. Investors who look forward to saving money on taxes can invest in PPF and get a tax deduction under Section 80C.

Benefits of a Fixed Deposit

The following are the key benefits of the FD scheme:

  • It is possible to earn money on a regular basis.
  • Returns are assured.
  • There are a variety of tenure possibilities available.
  • There are tax advantages to be had.
  • Senior citizens may be offered a higher interest rate.

Benefits of a PPF Account

The following are the key benefits of the PPF plan:

  • For a period of 15 years, deposits must be made at least once a year.
  • The scheme's minimum and maximum deposit amounts are Rs.500 and Rs.1.5 lakh, respectively.
  • There are tax advantages to be had.
  • The scheme has a 15-year duration.
  • The risks are limited because the scheme is backed by the government.
  • Nominees for the account can be added.
  • Demand draughts, internet transfers, checks, and cash can all be used to make deposits.

Comparison of FD rates

Name
Tenure
Highest Interest Rates
1
2
3
4
5

FAQs

Q1. Can I extend the life of my PPF account?

Yes, the PPF account's tenure can be extended in 5-year increments.

Q2. Is it possible to start a savings account on the internet?

Yes, you can open an FD account using the internet.

Q3. FD vs. RD vs. PPF, which is better?

If you have a lump sum amount - an FD is a good choice, and if you do not have a lump sum amount, an RD would be the better choice. But, PPF is a 15-year scheme, and if you can be invested in the long-term, you can invest PPF.

Q4. Which is better, PPF or FD?

If you're fine with a 15-year lock-in, PPF could be a smart alternative after all is said and done.

Q5. What is the difference between a bank and a firm fixed-income investment?

A bank fixed deposit is a type of deposit given exclusively by banks. Fixed deposits issued by non-banking financial institutions and businesses are known as corporate or company fixed deposits. Interest rates on company or corporate FDs are often greater than those on bank FDs. Corporate FDs, on the other hand, are unsecured, which means they are not covered by deposit insurance.

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