Difference between PPF and FD

Wondering about the differences between FD and PPF? You are not alone! There are tons of individuals who seek to know more about the similarities and differences between these two popular forms of investments. Knowing more about the underlying differences will help you choose an investment option that is more suitable for your needs. Of course, you can always count on an online PPF Calculator or even an FD Calculator to see you through in terms of working out the returns. However, it is more important to understand the core aspects of both investment avenues and how they are different.

Opening FD and PPF accounts

The process for opening these accounts is not that difficult. While you use an online FD Calculator for estimating the returns on your investment, you will have to visit your nearest bank branch for opening your fixed deposit. Bank fixed deposits can be set up with almost any banking institution and there will be some advantages including the overdraft facility, suitable lock-in periods as per your requirements and so on. You have to fill in the necessary details on the FD application form and submit it to your bank along with all the documents that are needed.

You can set up your PPF account at the post office or even select public sector banks (PSBs). You have to fill in the details on the PPF application form and submit some documents for opening your PPF account. This can be easily transferred to the bank from your post office by submitting an application/request in this regard.

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Fixed Deposits- What you should know

Before you lock in on PPF as your preferred investment mode and get out that PPF Calculator online, you should undoubtedly take a closer look at Fixed Deposits (FDs). These are the safest, most reliable and conventional investment channels in the country since you get a fixed interest rate for your deposit, helping you build wealth over your chosen time period. There are various kinds of FDs including flexi-deposits, sweep-in facility equipped FDs, bank FDs, special deposits and more. You can get interest on a monthly or quarterly basis for your chosen tenor or even on a half-yearly or annual basis. Interest that is earned is taxed based on the Income Tax Act of 1961 and TDS (tax deducted at source) is applicable as a result.

Key Aspects-

• FDs can be opened online as well in recent times if the bank has this provision.
• You can build wealth safely without worrying about market fluctuations or the security of your investment.
• You can choose the tenor flexibly and the rate of interest is higher as compared to savings accounts.
• You can set up multiple fixed deposits at various banking institutions.
• You can get loans against your fixed deposit.
• Liquidity is possible since premature withdrawals are allowed.
• You can get tax deductions under Section 80C in case you are investing in tax-saver FDs.

Bank FDs can be set up by resident Indians, HUFs (Hindu Undivided Families), NRIs, Proprietorship and Partnership Firms, Limited Companies and Trusts. You should always have a nominee for your FD who will have the rights to the funds in case of your unfortunate demise. Jointly held bank FDs require joint nominations by all holders of the deposits.

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PPF- What you should know

Public Provident Fund or PPF is one of the most preferred investment options in the country as well. This is a Central Government scheme that offers long-term savings options for investors and security after retirement. This works if you are looking at getting good returns which are tax-free and building a security corpus for yourself after retirement. The PPF contributions are tax-free in terms of their interest and also the maturity amount will not be taxed.

Key Aspects-

• The rate of interest is decent at around 7.80% per annum with annual compounding or whereabouts.
• The PPF tenor is 15 financial years along with the first investment year. One can extend the PPF account by another 5 years upon completion of the 15-year tenor.
• The minimum investment amount is Rs. 500 per annum.
• The maximum investment amount is Rs. 1,50,000 per annum. 12 deposits are allowed in total for a particular financial year.
• Tax benefits up to Rs. 1,50,000 are available under Section 80C.
• HUFs, NRIs and persons of foreign origin cannot invest in opening PPF accounts.
• Payment can be made via demand draft/crossed cheque/online transfer/pay order/cash.
• Nomination provisions are also available for PPF investments.
• Loans are offered against PPF accounts if one requires vital funding for reasons such as the weddings/higher education of children and so on.

Key Differences between FDs and PPF

• Rates of Interest- PPF interest rates are usually higher than FDs in most cases. PPF interest rates can hover around the 7.7-7.8% mark while bank FDs may give you anywhere between 6-7% on an average. The PPF rates are changed once in every quarter based on the 10-year G-Sec yield in the earlier quarter.
• Lock-In Tenor- Bank FDs do not have lock-in periods although tax-saver FDs have them. The maturity period for bank FDs usually varies between 7 days and 10 years. PPF investments have lock-in periods for 5 years and mature post 15 years.
• Premature Withdrawal Facility- Most banks will allow premature FD withdrawal prior to maturity by paying the penalty for the same (0.5-1% lower interest than the rate agreed upon) and subject to terms and conditions. PPF cannot be withdrawn in the first 5 years. Thereafter, you can withdraw money which is a maximum of 50% of the earlier financial year’s account balance or the 4^th financial year, immediately before the withdrawal year, whichever is lower. One withdrawal is only allowed for a single financial year.
• Taxation- Tax-saver FDs are the only ones that get deductions up to Rs. 1,50,000 under Section 80C. The same deduction applies for PPF contributions in a financial year. The maturity amount is also exempted from taxation and so is the interest that you earn. FD interest is taxed based on the individuals’ income tax slab. If interest crosses Rs. 10,000, your bank will be deducting TDS accordingly.
• Obtaining Loans- Most banking institutions offer loans against FDs where you can get up to 80-90% of the amount as your loan. The interest on these loans is comparatively lesser if you take personal loan interest rates into context. Loans are also available on PPF deposits. The first loan can be obtained in the third year of opening this account although it will be 25% of the balance including interest at the end of the earlier financial year. The loan should be repaid in a maximum of 3 years or 36 months. The second loan can be taken prior to the end of the 6^th financial year although it can be taken once the first loan has been totally repaid.

These are the key differences between FDs and PPF accounts that you should always keep in mind while choosing where to invest. Experts recommend that a mixture of both is always healthy in your financial portfolio.