Fixed Deposits and Public Provident Fund - How different both are from each other ?

Investors who does not like stock markets, mutual funds and ULIPs etc, they invest their money either in Bonds, FDs or PPF. Many a times people tend to confuse Fixed Deposit in bank with PPF deposits. Fact of the matter is both are completely different with it pros and cons.

Key differences between Fixed Deposit and Public Provident Fund :-

• FD has maturity period ranging from months to couple of years whereas PPF has maturity period of 15 years.
• Fixed Deposits can be opened in any bank in India whereas PPF account can be opened only with State Bank of India or Post Office.
• Fixed Deposits (practically) does not have any minimum and maximum limit of investment. PPF has minimum investment limit of Rs 500 per year and maximum of Rs 60,000 per year.
• Fixed Deposits Interest rate varies from bank to bank and depends on period of investment as well. In case of PPF the interest rate is 8% annually (government changes it from time to time).
• Interest on fixed deposits is a taxable income where interest on PPF is tax free income.
• Taxable income Rebate on Fixed Deposits amounts can not be availed in the financial year of investment whereas in case of PPF, rebate from taxable income can be availed in the financial year of investment.

Public Provident Fund comes handy for investors who are looking for long term investment and income tax benefits. Also PPF Account creates a physiological pressure to save money every year and invest some amount in it. However PPF can not be treated as cash ready to use in immediate funds requirement. Therefore liquidity to that extent goes down.

Loan can be availed against FD and PPF both, that is the only similarity both products has.

If in case your objective is to invest for short term and not looking for income tax benefits, then Fixed Deposits are the deal for you.

If in case your objective is to save Income  Tax and investment for long run, PPF is the product made for you.

Write down your end objective, do basic mathematics of net benefit from both options and go ahead with the most suitable option for you.