For India's low-risk investments, Public Provident Fund (PPF) and Fixed Deposits (FDs) are two of the investors' top preferences. Both are safe, stable in their returns, and are usually the starting steps for conservative investors. Yet, the decision between the two lies in several aspects, including investment term, tax advantages, liquidity, and your financial objective.
Today, we shall compare both PPF and FD extensively in order to guide you on the choice that is best for your investment mode and plans for the future.
✅ What is Public Provident Fund (PPF)?
PPF is a long-term saving scheme guaranteed by the government that was started in order to promote small savings with reasonable returns along with income tax benefits. It has a 15-year lock-in period, which is ideal for long-term financial planning for retirement, children's education, or purchasing a house.
Issuer: Government of India
Interest Rate: Determined by the government on a quarterly basis (currently ~7.1%)
Minimum investment of: ₹500 annually
Maximum investment: ₹1.5 lakh annually
Duration of appointment: 15 years (extendable in blocks of 5 years)
Tax Benefits: The tax benefits of the EEE (Exempt-Exempt-Exempt) type – free of tax on
✅ What is an FD (Fixed Deposit)?
Fixed Deposit is a deposit product by banks and NBFCs (Non-Banking Financial Companies), wherein you deposit a lump sum amount for a fixed tenure and receive guaranteed interest. Fixed Deposits are favored by all age groups due to their safety, liquidity, and certainty.
Issuer: Banks and NBFC
Interest Rate: Bank dependent and tenure (6%–7.5% is usually the range)
Minimum Amount for this Option/Plan: ₹1,000
Maximum investment amount: None
Tenure: 7 days - 10 years
Tax Benefits: Tax-Saver 5-year FDs alone are tax deductible in accordance with Section 80C up to ₹1.5 lakh
🔍 PPF vs Fixed Deposit – Feature-to-Feature Comparison
| Feature | PPF | FD |
|---|
| Issuer | Government of India | Banks / NBFC |
| Safety | Very High (Sovereign Guarantee) | High (Bank/NBFC-backed) |
| Interest Rate | ~7.1% (compounded yearly) | 6%–7.5% (compounded quarterly) |
| Tenure | 15 years (extendable) | 7 days up to 10 years |
| Liquidity | Low (partial withdrawal after 7 yrs) | High (premature withdrawal) |
| Tax Advantages | EEE: Exemption on interest or maturity | Only the 5-year FD qualifies for 80C |
| Loan Facility | 3rd to 6th year | For most of our Fixed Deposits |
| Premature Withdrawal | Partial after 7 years only | Permitted with penalty |
| Compounding Frequency | Annually | Quarterly or Monthly |
| Who Should Invest | Long-term, conservative investors | Short-term to medium-term savers |
🧠 Who is Eligible for PPF
PPF is suitable for:
Salaried or self-employed individuals seeking long-term savings
Goals like retirement or children’s education
Desire for tax-free returns
Not reliant on the money invested for immediate needs
Preference for a government-backed, zero-risk investment
💡 Who should select FD?
FDs are preferable if:
You prefer parking excess cash for a short or mid-term period
You are seeking returns that are guaranteed with greater liquidity
You are seeking an option with flexible tenure
You are a senior citizen (banks offer higher interest rates)
You wish to diversify your investments with low-risk items
🧾 Tax Implications: PPF vs FD
🔹 PPF (EEE Category):
Investment: Tax allowable under Section 80C (up to ₹1.5 lakh)
Interest Earned: Exempt fully from tax
Maturity Value: Tax free
✔️ Highly suitable for tax saving and long-term planning
🔹 FD
Only 5-year tax-saving FD qualifies under Section 80C
Interest received is tax-deductible (included in your income and taxed according to the slab rate)
TDS is applicable if interest is over ₹40,000 in a year (₹50,000 for senior citizens)
💬 PPF vs FD – Practical Situations
📘 Case 1: Long-term Investor (Objective: Retirement in 15–20 Years)
PPF wins — due to tax-free interest, assured returns, and disciplined saving.
📘 Case 2: Short-Term Investor (Objective: Travel in 1 Year or Emergency Fund)
FD wins — by virtue of short duration and greater liquidity.
📘 Case 3: Senior Citizen seeking stable income
FD wins — banks give 0.5% extra interest to senior citizens, along with monthly payment options.
📘 Case 4: ₹1.5 lakh yearly saving by young investor in 80C
PPF wins — full tax-free interest and higher returns after tax compared to FD.
📊 Which is More Profitable?
Although FD interest is slightly higher, PPF provides better return-after-tax with its status of being tax free. Even 0.5%-1% difference in interest on a period of over 15 years can result in impressive tax-free buildup of wealth with PPF.
For instance:
Investing ₹1.5 lakh annually in PPF for 15 years at 7.1% → ₹40+ lakh (approx, tax-free)
Same in FD (7.5% interest, taxed at 20%) → reduced maturity due to tax deduction
✅ Conclusion: What is Your Choice?
There isn't any single answer. The appropriate choice is determined by your:
Investment horizon
Need for liquidity
Tax bracket
Financial objectives
Use PPF if you are investing for the long run, need tax-free returns, and can commit money.
Use FD for short to mid-term objectives, emergency savings, and when you want flexibility.
💡 Most prudent investors invest in both PPF and FD for diversification – PPF for long-term growth and FD for stability in the short run.
📌 Pro Tip:
You can open a PPF with as little as ₹500 and an FD with ₹1,000 — small savings that can accumulate and contribute to financial security in the long run.
🏁 Final Words
PPF and FD are wonderful additions in your financial arsenal. Using them in the right situation and manner can get you to your life objectives that much quicker with the least risk.
Disclaimer:
This post is for informational purposes only. Please consult a financial advisor before making any investment decisions. Rates and rules are subject to change.
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