Thinking of spending money? Provident Fund vs Fixed Deposit, Which Investment Option is Right for You?

Thinking of spending money? Provident Fund vs Fixed Deposit, Which Investment Option is Right for You?
Thinking of spending money? Provident Fund vs Fixed Deposit, Which Investment Option is Right for You?

Kolkata : Financial planning for the future is very important. Especially when we start earning at a young age. If not earned from a young age, responsibilities and expenses will increase with age. Naturally then one would have to work harder and not be able to retire early. The good news is that there are multiple savings options for people of all ages.

If a person wants a peaceful life without the hassle of earning during retirement, then Public Provident Funds and Fixed Deposits can be suitable options for him. Investing in these two options can easily save money for the future. Both schemes have advantages and disadvantages. This is why one should know all the details before investing in any option. This report discusses PPF and FD investments in detail.

What is PPF?

Public Provident Fund is a government long-term permanent savings scheme. Investments in this scheme offer tax exemption benefits as well as guaranteed returns. The investor can apply for tax exemption under Section 80C of the Indian Income Tax Act. The tenure of PPF account is 15 years and no withdrawals can be made before maturity except under special conditions. If the account tenure is 5 years, the investor can withdraw partial amount.

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Characteristics of PPF

  • PPF is a government recognized long term savings plan.
  • Investors can deposit up to Rs 1,50,000 every year and avail tax exemption under 80C of the Income Tax Act.
  • The tenure of PPF is 15 years and partial withdrawal is possible under special conditions.
  • Investment, interest and money received after maturity are not taxed.
  • Post offices, banks and financial institutions provide PPF facilities.
  • Non Resident Indians or NRIs cannot open PPF accounts.

What is Fixed Deposit?

Fixed Deposit or FD is the safest investment option. In this case, interest is much higher than savings account without any risk. While investing in fixed deposits the investor has to fix a tenure and interest is paid based on that. For senior citizens, fixed deposits pay comparatively higher interest.

Features of Fixed Deposits

  • Fixed Deposit is a safe investment option that offers guaranteed interest.
  • In this case the investor has zero chance of loss.
  • Interest rate on fixed deposits is higher than other risk-free investment options.
  • Tax levied on interest above Rs.40,000. However, the investor can apply for tax exemption.
  • Top-up loans are available based on fixed deposits.

Difference between Fixed Deposit and PPF

subject Fixed Deposit PPF
Approving Agency NBFCs and Banks Government of India
Amount of investment There is no investment limit in Fixed Deposit A total of Rs 1,50,000 can be invested in a PPF scheme in a financial year.
duration The tenure of the fixed deposit is determined by the investor. The tenure of an FD can range from 7 days to 10 years. A PPF scheme has a tenure of 15 years. However, conditionally, money can be withdrawn before maturity.
qualification Any Indian can invest in fixed deposits, starting with Indian residents and NRIs. Only Indian residents can invest in provident funds.
interest rate Interest rates on fixed deposits range from 5 percent to 7 percent per annum. The interest rate usually depends on the bank. The ROI of PPF is fixed by the Government of India. Presently the interest rate on provident fund is 7.1 percent per annum.
Loan facility Loans can be taken based on fixed deposits. Up to 75 percent of the total deposit amount can be availed as loan. Loan can be applied for after 3 years of PPF tenure.
Withdrawal before maturity Fixed deposits are liquid assets and have the facility of early withdrawal. The tenure of PPF is 15 years. However, term money can be withdrawn subject to conditions.

First published: September 21, 2022, 14:57 IST

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Tags: Investment

The article is in Bengali

Tags: Thinking spending money Provident Fund Fixed Deposit Investment Option

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