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PPF VS Fixed Deposits – All You Need to Know

When it comes to secure investment options in India, there are two strongly recommended forms of investment – Public Provident Fund (PPF) or Fixed Deposit (FD). Both these forms of investments are popular among risk-averse investors. But how do you choose your pick? What are the differences between both? This article elaborates on these aspects. Let us understand what the features of each of them are.

What is a fixed deposit investment?

A fixed deposit is a form of term deposit instrument where the investment is made for a predefined fixed duration. As the name suggests, the returns on these investments are fixed and thus, its maturity value is determined at the start. You can invest in fixed deposit schemes not only with commercial and small finance banks but also non-banking financial companies. Further, investment is also possible in a post office FD.

This form of investment is recommended for those who do not want to face any amount of risks with their investments. Since the very nature of a fixed deposit is a definite amount of return, it serves as a way to have guaranteed returns for the investments made.

What is a public provident fund investment?

Public Provident Funds (PPF) are government-backed investment-cum-tax-saving tool. The origin of this investment avenue dates back to over 50 years and is prevalent among risk-free investors. The guaranteed nature of a PPF investment makes it a 100% secure form of investment.

Let’s look at the differences between the two investments based on the following criteria–

Issuing organisation: Banks and non-banking finance companies can accept fixed deposits whereas nationalised banks and a few authorised private sector banks can accept PPF.

Eligibility: All individuals, companies, Hindu Undivided Family (HUF) entities, partnership firms and even Non-Resident Individuals (NRIs) can invest in a fixed deposit. The same eligibility for a PPF investment is limited only to resident individuals. Thus, the FD investment avenue is open to all persons as classified by the tax laws (Note: The classification of a person is separately defined under the Income Tax Act).

Joint Account: You can have any number of joint account holders for a fixed deposit scheme whereas no two individuals can have a joint PPF account.

Duration of investment: Fixed deposit can be invested for a minimum tenure of 7 days until a maximum tenure of 10 years. This tenure is fixed to 15 years when it comes to PPF. Further, this can be extended in blocks of 5 years after the minimum stipulated tenure of 15 years.

Return on investment: The fixed deposit interest rates are predefined and compounded either at each quarter, month or half-year. Here, you earn interest on the already earned portion of your investment thereby driving your investment higher. The PPF rules specify the calculation of interest every month but is credited to your account at the end of each financial year.

Loan against the investment: An FD can be placed as collateral to obtain loans as high as up to 90% of the deposit amount. On the other hand, a loan against your PPF investment is available only after the third financial year.

The above are some of the points of differentiation between an FD investment vis-à-vis a PPF investment. Keep these points in mind when selecting your investment choice and invest accordingly.

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