PPF VS FD Accounts

 1. PPF Account 

PPF scheme was launched in 1968 by the Finance Ministry's National Savings Institute. The main objective of PPF scheme is to help individuals make small savings and provide returns on the savings. The PPF scheme offers an attractive rate of interest and no tax is required to be paid on the returns that are generated from the interest rates.

Currently, PPF interest rate has been reduced from 7.9% to 7.1% and it is compounded on an annual basis. The interest is paid on March 31 and the PPF interest rate is set by the Finance Ministry on a yearly basis. The calculation of interest is based on the minimum balance that is available between the close of the fifth day and the last day of the month.

Public Provident Fund is an investment which comes under the Exempt-Exempt-Exempt (EEE) category.

This means that the deposits that you make in the Public Provident Fund will be deductible (Section 80C of the Income Tax Act).

The amount that you accumulate and the interest will be exempt from tax when you withdraw the money.

Eligibility to open a PPF account

1. You  are a citizen of Indian

2. You can open only one PPF account unless your second PPF account is in the name of a minor.

3. You cannot invest in PPF is you are an NRI or HUF.

Investment Limits:

For a PPF, you should have a minimum investment of Rs.500 and your maximum investment is Rs.1.5 lakh for every financial year.

Tenure of the PPF:

The minimum tenure of a PPF is 15 years. This can be extended in sets of 5 years.

Deposit Frequency:

Your deposits into the PPF account have to be made once every year for a tenure of 15 years.

Opening Balance:

You can open a PPF account with Rs.100 and annual investments over Rs.1.5 lakh will not earn any interest.

Nomination:

As a PPF account holder, you can have a nominee for your account when you open the account or after.

Mode of deposit:

You can make a deposit into the PPF account via cheque, cash, demand draft, or online fund transfer.

Risk factor:

The PPF is backed by the Indian government, and so, it is risk-free and offers guaranteed returns.

Joint accounts:

You can hold a PPF account in only one individual's name.

The Importance of PPF

1. PPF is considered to be one of the best investment tools and is suitable for those with low-risk appetite.

2. The returns are low since this investment tool is market linked.

3. The returns are fixed and can be used as a diversification tool and also offers tax-saving benefits.

2. Fixed Deposit (FD)

A fixed deposit (FD) is a specific deposit instrument provided by banks or other financial institutions which provides investors a higher rate of interest than a regular savings account, until the given maturity date. It may or may not require the creation of a separate account. The term fixed deposit is most commonly used in India and the United States. It is known as a term deposit or time deposit in Canada, Australia, New Zealand, and as a bond in the United Kingdom.

A fixed deposit means that the money cannot be withdrawn before maturity unlike a recurring deposit or a demand deposit. Due to this limitation, some banks offer additional services to FD holders such as loans against FD certificates at competitive interest rates. Banks may offer lesser interest rates under uncertain economic conditions.

Taxability of FD

In India, tax is deducted at source by the banks on FDs if interest paid to a customer at any bank exceeds ₹ 10,000 in a financial year. This is applicable to both interest payable or reinvested per customer. This is called Tax deducted at Source and is presently fixed at 10% of the interest. With CBS banks can tally FD holding of a customer across various branches and TDS is applied if interest exceeds ₹ 10,000. Banks issue Form 16 A every quarter to the customer, as a receipt for Tax Deducted at Source.

Benefits of FD 

Customers can avail loans against FDs up to 80 to 90 percent of the value of deposits. The rate of interest on the loan could be 1 to 2 percent over the rate offered on the deposit.[8]

Residents of India can open these accounts for a minimum of seven days.

Investing in a fixed deposit earns customers a higher interest rate than depositing money in a saving account.

Tax saving fixed deposits are a type of fixed deposits that allow the investor to save tax under Section 80C of the Income Tax Act.

Comparison between FD and PPF Account 

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