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PPF offers 7.1% annual returns, while bank FDs are lower. HDFC Bank’s one-year FD yields 6.25%, making PPF a better option for higher returns
The interest earned on PPF is entirely tax-free, whereas income tax is applicable on the interest earned from FD. (Representative/Shutterstock)
In the world of investment, common investors are always on the lookout for options that are safe and offer fixed returns. While the stock market and mutual funds may promise high returns, the associated risks deter many from investing in them.
Consequently, Public Provident Fund (PPF) and Fixed Deposit (FD) emerge as two of the most popular and secure investment instruments. The pertinent question is, which of these options is better?
Interest Rate
Currently, PPF offers an annual return of 7.1%, whereas bank fixed deposits yield a lower interest rate. For instance, HDFC Bank provides a 6.25% interest rate on its one-year FD. Thus, in terms of returns, PPF outperforms FD.
Tax Benefits
PPF holds a significant advantage regarding tax benefits. The interest earned on PPF is entirely tax-free, whereas income tax is applicable on the interest earned from FD. Investors in higher tax brackets may have to pay up to 30% tax on FD income, effectively reducing the 6.25% interest to just 4.37%.
Lock-in Period
The lock-in period is where FD has the upper hand. Funds in an FD can be withdrawn anytime, albeit with some penalties. Conversely, PPF has a 15-year lock-in period, with partial withdrawal facilities available after five years.
Which Is The Better Option?
Ultimately, the choice depends on investment goals and the investor’s tax slab. For those aiming to save tax and earn higher interest through long-term investment, PPF is the better option. Conversely, for individuals needing immediate access to funds and falling in a lower tax slab, FDs offer greater convenience.
In summary, PPF suits long-term investment and tax-saving objectives, while FDs provide liquidity and flexibility. Both remain safe investment avenues, with the choice determined by individual needs.
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