Choosing between PPF or FD depends completely on your needs from investment. What’s right for you might not be right for someone else since both investments have their benefits and need not necessarily suit everyone. Let’s compare the two and see which one would suit you.
PPF stands for Public Provident Fund. It is a scheme that is backed by the Government of India. PPF offers one of the highest rates on deposits. However, it is a long-term investment for 15 years. With a PPF account, you need to deposit just Rs.500 minimum per year. You can make a deposit of maximum Rs.1.5 lakh annually. You can take loans against your deposit between the 3rd and 6th year, and you can make partial withdrawals from the 7th year. For the current financial year, you can earn 8% p.a. on your PPF account.
A tax-saver FD is offered by banks under their term deposit schemes. This FD has a lock-in period of 5 years, after which you can withdraw or renew the deposit. You can open this FD with a minimum of Rs.1,000 and up to a maximum of Rs.1.5 lakhs. These deposits do not have the facility of loan against the deposit. There are no premature withdrawals or partial withdrawals allowed.
A tax saver FD requires a one-time lump sum investment. If you can make such a deposit, this investment will generate decent returns and it’s only locked away for 5 years.
With PPF, you can deposit as many times as you want, but at least Rs.500 and not above Rs.1.5 lakh in one year. So, if you are the type who prefers recurring deposits, PPF is a good option for you. As and when you get extra money, you can deposit it.
Another important thing to keep in mind is - “what is your objective- is it short-term savings or a retirement plan?” Since PPF is 15 years, it is more suitable as a retirement plan, whereas tax-saver FD, you can earn interest for 5 years and reinvest it.
You can avail a tax-saver FD at any bank that offers the scheme. If the bank provides an option online, you can open it using their online banking facility, otherwise you’ll have to visit the bank.
If you wish to open a PPF account, you can do so at the Post Office or at any bank that carries the scheme. The online opening of PPF account will be available if the bank provides it.
When it comes to investments, the best thing to do is diversify. Always invest in multiple schemes to get different benefits. While one scheme may have more risk and more returns, another scheme may have low risk and low returns. For example, if you want to save Rs.3 lakh every year, it would be wise to put a portion in the tax-saver FD and some of it in PPF. However, remember that even if you deposit Rs.3 lakh in two different schemes, you can claim only up to Rs.1.5 lakh as tax benefit under Section 80C for both investments.
However, investing in both will cater to short-term and long-term goals. Now that you know the difference between the two and their benefits, you can make the right choice and start investing now!