By The BuyT Desk
Fixed Deposit(FD) and Public Provident Fund (PPF) are fixed investment instruments with steady returns. The return is not market-linked thus, they are considered to be a stable instrument. FD and PPF may not give high return but give assured return and risk to your capital are next to zero. However, they may sound very similar but are different from each other on various fronts.
How do FD and PPF work?
Fixed Deposit- FD-In a fixed deposit, the investor deposits a fixed amount of money for a fixed period. They earn interest on the money, which is higher than the savings account. But the money is locked depending upon the tenure of the deposit. Usually, an FD is of one, two, three or 5-year tenure. The deposited amount gets an interest according to the tenure that you chose. Longer the tenure higher the interest that the investor receives. You can deposit the money only once in an FD. If you have chosen a tenure of 5 years and in the 3rd year of the FD you want to add more, you can’t do that. To deposit more, you need to open a new account.
Public Provident Fund – PPF- PPF is a long term saving scheme. In a fixed deposit, you deposit the money once, and it is locked for a certain period whereas in a PPF you need to contribute regularly. You can either make a once year lumpsum payment or monthly payments. Your capital is locked for a tenure of 15 years in a PPF. You are allowed to deposit up to Rs1.5 lakh in a year in your PPF account.
Interest On FD and PPF
The FD interest is decided by the provider of the FD. Bank FDs currently are in the range of 2.25% to 7.25%. The interest on PPF is governed by the government and gets reviewed every quarter. At present, the interest on PPF is at 7.1% for January o March 2021.
Can you withdraw money before maturity?
Though the tenure of PPF is 15 years, partial withdrawal is allowed after completion of 4 years. But an investor can withdraw only 50% of the deposited amount can be withdrawn. Premature closure of PPF is permitted after 5 years on specific grounds of health, education or some other pressing issue. As far as FD is concerned, their maturity period is shorter than PPF. Partial withdrawal and premature closure are allowed, but there could be penalty depending upon the individual FD provider.
TaxationÂ
Both FD and PPF are eligible for tax deduction under section 80 C of the Income Tax Act, but FDs have to meet a particular condition. PPF comes under exempt-exempt-exempt category thus the deposit that you make, the interest that you earn and the amount on maturity are tax-free. In an FD the interest is taxed as per you tax slab. FDs with 5-year of lock-in ar only taxfree and can be claimed for 80C deduc
