PPF and FD: Which Investment Option is Best for You?

 When it comes to building a long-term investment or planning for retirement, the dilemma between a Fixed Deposit (FD) and Public Provident Fund (PPF) is common among investors. Although both FD and PPF generate assured returns, they have key differences with respect to lock-in periods, investment amounts & frequencies, tax implications and more.

While ICICI Bank offers both investment options, you have to first understand PPF and FD and the differences between them before you can decide which one aligns more with your goals. In this blog post, we will examine both products in detail so that you can make an informed decision.

What is PPF or Public Provident Fund?

The Public Provident Fund is a long-term savings scheme backed by the Indian government. Its primary aim is to encourage savings by offering assured, attractive returns with lucrative tax benefits. A PPF Account has a tenure of 15 years, which you may extend in blocks of 5 years after maturity. The government decides and revises the PPF interest rates every quarter.

Although the lock-in period is 15 years, you can partially withdraw the deposit after completing 6 financial years of investment.

Features and Benefits of Public Provident Fund

Here are some primary features and benefits of PPF:

• Investment Limits: The minimum PPF investment required to be made every year is ₹ 500. The deposit cannot exceed ₹1.5 lakh per year.

• Tenure: PPF has a fixed tenure of 15 years, which is extendable in blocks of 5 years.

• Deposit Frequency: Your PPF account should show a minimum deposit of ₹ 500 every financial year for 15 years. If you skip a year, the account becomes inactive. You can also set up standing instructions to transfer a fixed amount of money from your bank account to your PPF account at a fixed monthly frequency.

• Tax Benefits: PPF falls under the EEE (Exempt-Exempt-Exempt) tax savings category, which means the investment amount, interest earned and maturity proceeds are all tax- free.

• Mode of PPF Deposit: You can deposit money into your PPF account via various modes, including cash, cheque, online transfer, ECS, NEFT or standing instructions.

• Nomination: You can select a nominee at the time of opening a PPF account or afterwards.

• Government Backing: The Indian government backs the PPF scheme, which ensures complete protection while providing good returns.

• Interest Calculation: The interest on PPF deposits is calculated every month but compounded and credited once a year. Use an online PPF calculator to estimate your interest earnings and maturity amount.

What is a Fixed Deposit or FD?

Fixed Deposits are low-risk investment instruments that many banks and NBFCs offer. Fixed Deposits from ICICI Bank are excellent tools to deposit money and grow your savings. You may deposit a lump sum amount as per your financial capacity and choose a tenure that suits you.

The FD earns interest at a pre-decided interest rate, which you may receive as a lump sum at maturity or as monthly installments during the FD tenure. The interest rate remains the same, irrespective of market conditions, thus providing assured returns on the deposit.

Features and Benefits of Fixed Deposits

A Fixed Deposit offers the following features and benefits:

• Assured Returns: The interest rate of an FD is decided at the time of opening and remains unaffected by market conditions.

• Solid Gains: In a cumulative Fixed Deposit, interest is compounded quarterly, providing higher gains on the deposit amount.

• Tenure Flexibility: You can choose an FD tenure between 7 days and 10 years based on your financial goals.

• Regular Income Source: Opt for a monthly payout Fixed Deposit from ICICI Bank to receive interest in the form of monthly payouts. This acts as a steady income source coming directly into your bank account.

• Extra Benefit for Senior Citizens: There are higher interest rates on Fixed Deposits for senior citizens.

• Tax Benefits: A Tax Saver Fixed Deposit from ICICI Bank brings down your income tax liabilities. Create an FD for a fixed tenure of 5 years and claim a tax exemption of up to ₹1.5 lakh under Section 80C of the Income Tax Act, 1961.

Suitability of Public Provident Fund

Public Provident Fund investments are beneficial for those looking for fixed returns over a longer period. Since PPF has a lock-in period of 15 years, it is a good option if you are ready to lock in a portion of your money for that period. Once this period is over, you can extend it further if you want. Thus, PPF is more suitable for long-term financial goals such as property purchase, children’s marriage or education, etc. Include a PPF account in your fixed-income portfolio to build wealth over a longer period. You can also save money on taxes by investing in PPF.

Suitability of Fixed Deposits

The risk-free investment aspect of a Fixed Deposit makes it suitable for those looking for safe investment avenues. FDs provide predetermined returns since market volatility does not impact their interest rates. Although market-linked instruments can offer higher returns than Fixed Deposits, they come with a higher level of risk. FDs come with the added benefit of flexible tenures and possibility of premature withdrawal or closure, albeit with penalties. Apply for a Fixed Deposit with a reputed financial institution like ICICI Bank to generate assured returns for a tenure of your choice.

PPF and FD: Which is Best for You?

Both PPF and FD are excellent investment options for risk-averse investors. PPF is suitable if you want to save tax and simultaneously invest for long-term goals. On the other hand, FD provides more liquidity and flexibility in terms of tenure and premature withdrawals.

ICICI Bank provides both FD and PPF as investment options. Use the respective online calculators to estimate your returns and choose the option that suits your financial goals, investment horizon and liquidity needs.