When you plan to invest, it is necessary to acquaint yourself with all the instruments of investments and weigh their pros and cons before putting your money into it. Investment instruments are primarily of two types – Ones offering fixed returns and others offering market-based returns.
Public Provident Fund (PPF) and Fixed Deposits (FD) are two of the most popular fixed return investments instruments that generate stable returns irrespective of market volatilities.
What is FD?
FD is an investment instrument where one can deposit a lump sum amount where the rate of interest is relatively higher than the one offered in traditional savings accounts. Depending on the policy’s tenure, the investment will remain locked until a certain period of time. After the investment amount is invested, the rate of interest goes on accruing with the invested principal amount.
What is PPF?
PPF is a government based investment cum savings plus tax plan and is a hit amongst investors looking for long term safe return avenues of investments. It is one of the most secure forms of investment that the government and zero risks govern.
Furthermore, it provides several tax benefits and attractive returns. The expected composite return on PPF can be easily calculated by online tools like PPF return calculator.
FD versus PPF
Whether a person should put his/her money in an FD or in PPF depends upon the investor’s objective and the features of the two fixed return earning investment instruments. In doing so, the investor would realise the difference between the two and take a call as per his/her goals –
· Issuers – While PPF is issued by the India Post, and some allowed commercial banks, FDs are issued by all types of banks and Non-Banking Financial Companies (NBFCs).
· Tenure – The tenure of a PPF is 15 years, which can be extended in a block of 1 or 5 years. By using a PPF maturity calculator, one can decide whether to extend the fund or not. In this tenure of 15 years, you cannot withdraw money from the PPF. In FDs, investors can choose their tenure, which may range from 7 days to 10 years.
· Liquidity – PPFs are seen as retirement corpus building for their liquidity is extremely low. One can withdraw money every year from PPF from the 7th financial year. Until then, no withdrawal is allowed. FDs are relatively moderately liquid than the PPF.
Premature withdrawal of funds, as well as premature closure of the FD, can be initialised.
· Returns – The interest of PPF is paid out on 31st March of every financial year. The current ROI of PPF is 7.9% per annum, whereas interest return on the FD depends on the maturity, mid-withdrawals and the interest given by the banks. The interest return of PPF is definite which can be estimated by PPF calculator.
· Tax benefit – Though both PPF and FD enjoy tax benefits, PPF offers higher tax benefits. While after 5 years of lock-in, FDs enjoy a tax exemption of Rs. 1.5 lakhs, PPF enjoys the full exemption from income tax.
If you are still in two minds about which instrument to choose for investment, visit CRED and access the best expert services to help you with your investment and other financial decisions.