Consider your financial goals, risk tolerance and other factors before making a decision.
When it comes to saving for your future, there are numerous options available to Indians, but two of the most popular ones are PPF (Public Provident Fund) and FD (Fixed Deposit). Deciding which option is better for you depends on your specific needs and goals.
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Let’s explore each one in detail:
PPF, or Public Provident Fund, is a government-backed investment-cum-tax-saving instrument. It serves as an investment vehicle that allows you to accumulate retirement funds while also reducing your yearly taxes.
The minimum tenure for a PPF account is 15 years, with the possibility of extending it in blocks of 5 years according to your preference. You can invest a minimum of Rs 500 and a maximum of Rs 1.5 lakh per financial year, either as a lump sum or in a maximum of 12 installments. Opening an account requires a minimum monthly deposit of just Rs 100. However, any investments above Rs 1.5 lakh per year will not earn interest and won’t be eligible for tax savings. Deposits into a PPF account must be made at least once every year for 15 years.
One significant advantage of PPF is that both the interest earned and the maturity amount are tax-free under Section 80C of the Income Tax Act, 1961. The current PPF interest rate is 7.1% per year, compounded annually.
On the other hand, FDs, or Fixed Deposits, are savings instruments provided by banks and NBFCs (Non-Banking Financial Companies). FDs are considered one of the safest investment avenues, as the interest rates are fixed by the government of India, shielding them from market fluctuations.
The tenure of an FD can vary based on your investment objective, ranging from a minimum of 7 days to a maximum of 10 years. Cumulative FDs compound interest on a half-yearly, quarterly, or monthly basis, resulting in higher gains on the principal amount. For senior citizens, most banks offer a higher fixed rate of interest, enabling them to accumulate larger savings without taking any risks.
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Additionally, certain FDs provide the option of a monthly payout, which can serve as a reliable source of income for individuals. Moreover, tax-saving fixed deposit schemes can help reduce your income tax liability. Investors can seek tax exemption up to Rs.1,50,000 under Section 80C of the Income Tax Act of 1961.
Eventually, choosing between PPF and FD is determined by your specific savings goals. If you want a fixed income source with flexibility and the possibility for better returns, FDs may be a good choice. However, if you prioritize long-term retirement savings with tax advantages, a PPF may be the best option for you.
