If you are a risk-averse investor, you might be looking for safer investment instruments to park money and earn stable returns. In this regard, there are two available routes, namely Fixed Deposits and Public Provident Funds.
Both these investment options offer substantial potential to earn interest income. At the same time, they come with distinct sets of features and benefits. If you are struggling with the choice of FD vs PPF, consider going to the following sections.
What are Fixed Deposits?
Fixed Deposits are low-risk carrying investment instruments offered by financial institutions. You can choose a principal sum per your financial standing and a suitable tenure that works best for you.
When it comes to a Fixed Deposit, the financial institution imposes a pre-decided interest rate. One of the many beneficial features of FDs is that the interest rate on this instrument remains unchanged due to market conditions. This results in stable returns over an extended tenure.
What are the Features of Fixed Deposits?
Fixed Deposits come with the following features and benefits:
1. Flexible tenure
One of the many benefits of FDs is that they come with a fixed tenure. You can choose between short-term and long-term fixed deposits based on your investment objectives. The tenure can last anywhere from 7 days to 10 years.
2. Power of compounding
Mostly, banks and financial institutions offer FDs at compounded interest rates. Cumulative FDs compound interest monthly, quarterly, or semi-annually. This ensures higher returns on the principal amount.
3. Assured returns
The FD interest rates are not affected by market conditions and remain fixed throughout the investment tenure. This ensures that returns on maturity are guaranteed. This could be extremely helpful for conservative investors seeking to build wealth.
4. Regular income source
Apart from maturity at tenure end, FDs can also provide regular interest payouts to individuals. In this regard, you can talk with your bank for monthly or quarterly payouts of returns. This will help you meet your near-term financial requirements.
5. Added benefits for senior citizens
Most banks offer senior citizens higher interest rates on FDs. This will allow them to save more money and create a substantial sum as a retirement corpus.
6. Tax saving
To help individuals avail tax deductions, banks and financial institutions also offer tax saving FDs. These fixed deposits can help you reduce your income tax liability. Such deductions fall under Section 80C of the Income Tax Act of 1961, which allows you to claim a tax exemption of up to Rs.1,50,000 in a particular financial year.
What Is a Public Provident Fund?
Public Provident Fund, or PPF, is an investment and tax saving avenue offered by the Government of India. Introduced in 1968, PPF is considered as one of the safest long-term investments in the country. However, this type of investment is encouraged for salaried individuals.
Furthermore, the Government of India regulates the PPF interest rate quarterly. At present, it has been set at 7.1%. To understand the comparison of FD vs PPF, you need to understand that the latter offers profitable returns along with the benefit of tax deduction.
What are the Features and Benefits of PPF?
Public Provident Fund offers the following features and benefits:
1. Long tenure
With a deposit tenure of 15 years, PPF is a viable long-term investment. However, this investment offers individuals the flexibility to make partial withdrawals after 5 years from the date of account opening.
2. Minimum investment limit
Minimum investment amount for PPF starts at as low as Rs.500. At the same time, the maximum amount can reach Rs.1.5 Lakh during a financial year.
3. Tax benefit
One of the primary benefits of PPF investment is the ability to obtain tax benefits. In this regard, note that the interest earned through the PPF account is eligible for tax deduction. Furthermore, contributions to the PPF account up to a maximum of Rs.1.5 Lakh are eligible for tax deduction under Section 80C of the Income Tax Act. Withdrawals to the PPF account are also tax-free.
4. Option to choose a nominee
A PPF account also allows you to choose a nominee at the time of opening an account or subsequently. This will allow your family members to access funds from your account in case of any unfortunate accident.
5. Risk-free returns
PPF is an investment avenue that features complete government backing. Similar to FDs, the interest rate is not affected by market fluctuations. This ensures risk-free returns over the long term while allowing capital appreciation.
Evidently, both FDs and PPFs have their own sets of benefits. While FDs seem feasible in terms of tenure flexibility and liquidity, PPF offers greater tax benefits. Moreover, PPF could be a better choice if you are looking at long-term investments.
However, if FDs are your choice, you can consider comparing different Fixed Deposit offers extended by leading banks and financial institutions of India in Bajaj MARKETS. This platform allows you to compare interest rates and features, helping you make an informed investment decision.
The choice between FD vs PPF solely depends on your financial goals. Thus, consider assessing your short-term and long-term financial obligations before making a decision.