Ever since FDs were deregulated in 1992, they have become the preferred investment option for a majority of Indians. In 1997, India’s apex bank deregulated fixed deposit interest rates, and banks could offer competitive rates, further enhancing their popularity. Today, fixed deposits offer interest rates up to to 9.10% p.a., with lock-in periods between 7 days and 10 years.

Public Provident Fund (PPF), on the other hand, is fully backed by the central government and was introduced to Indian citizens in 1968. In 2019, the Indian government introduced the new PPF scheme, replacing the then-existing model. The benefits of PPF (introduced in 2019) are manifold. You can now make as many deposits as you want, while the maximum deposit amount during a financial year remains ₹1.5 Lakhs.

With the burgeoning Indian middle class looking for risk-free investment vehicles, fixed deposits and PPF have become two of the most popular investment instruments. However, do the benefits of FDs outrank those extended by PPF schemes? And which investment instrument provides better returns? We delve into these questions to provide you with the answers.

The Popularity of Fixed Deposits (FDs)

FDs are offered by banks and non-banking financial companies (NBFCs). Because of their deregulation, financial institutions are free to offer competitive interest rates. Furthermore, fixed deposits are some of the safest investment avenues in the country, as their returns aren’t market-linked. You can park your corpus in an FD for up to 10 years, and the amount attracts fixed interest over the FD’s tenor.

Benefits Extended by Fixed Deposits

The benefits of FDs have made them the go-to investment option for middle-income households for decades. We highlight some of these benefits below.

● Risk-Free with Guaranteed Returns: Fixed deposits are ideal for risk-averse investors with a long-term investment horizon. Since FDs are not market linked, the market conditions and movements do not affect the returns. You can even invest in an FD to enjoy inflation-beating returns for the short term.
● Higher Gains: If you have invested in a cumulative FD, its interest is compounded on a monthly, quarterly, or half-yearly basis. Thus, you can enjoy higher gains on the principal amount.
● Higher Interest Rates for Senior Citizens: Most financial institutions offer higher interest rates for senior citizens. This can range from 0.25% to 0.50%, depending on the institution’s policies. Therefore, senior citizens can accrue greater savings without facing any risk.
● Passive Income: While investing in a fixed deposit, you can opt for a monthly payout. This can act as passive income or monthly income, which can be highly beneficial for individuals post-retirement.
● Tax-Saving FDs: You can also opt for a tax-saving FD and reduce your tax liability. You can claim tax exemption u/s 80C of the ITA up to ₹1.5 Lakhs.

Why Choose Public Provident Fund (PPF)?

The Public Provident Fund (PPF) has been one of the most popular savings-cum-tax-saving instruments in the country for more than 50 years. Since it is backed by the central government, it is one of the safest investment instruments. Currently, PPF offers an interest rate of 7.1% per annum, and the interest is set by the Indian government and is adjusted every quarter. One of the major benefits of PPF is that it offers profitable returns while providing tax deductions.

Benefits Extended by Public Provident Fund

Below are some of the benefits offered by PPF schemes.

● Longer tenor: Unlike FDs that offer a tenor ranging from 7 days to 10 years, PPF schemes come with a lock-in period of 15 years. This allows you to remain disciplined and invest for the future. You can also make partial withdrawals after the initial five years and extend the tenor after maturity in blocks of five years.
● Frequency of Deposits: Another benefit of PPF (after the introduction of new rules in 2019) pertains to the frequency of deposits. You can make 12 deposits in a financial year, but the maximum limit remains ₹1.5 Lakhs. You have to make at least one deposit a year during the 15-year period, and you can invest as little as ₹500.
● Deposit Mode: You can contribute to your PPF through a cheque, demand draft (DD), or online fund transfer.
● Tax Exemptions: PPF enjoys the Exempt-Exempt-Exempt (EEE) status. That is, your investment, interest, and maturity proceeds are eligible for tax exemption.
● Nomination: You can choose your nominee while opening your PPF account or at a later date.

Fixed Deposit vs. Public Provident Fund

We can now compare the benefits of FDs to those extended by PPF schemes to find which investment vehicle provides better returns.

• Parameter	Fixed Deposit (FD)	Public Provident Fund (PPF)
  Minimum Deposit Amount	₹1,000 (depending on the issuer)	₹500
  Issuing Authority	Banks and NBFCs	Indian Government
  Liquidity	Moderate	Low
  tenor	7 days to 10 years (some banks may even offer tenors up to 20 years)	15 years (can be extended after completion in blocks of 5 years)
  Eligibility Criteria	HUFs, resident corporations, trusts, firms, etc., along with NRIs	Indian residents
  Interest Rate	2.75% - 9.10%	7.1% (currently)
  Loan Against Deposit	Available	Available only after the completion of three years
  Premature Withdrawals	Allowed for specific FDs	Allowed only after the completion of five years
  Tax on Interest Earned	Taxable	Completely exempted from taxes
  Tax Benefit on the Invested Amount	Tax-saving FDs offer tax benefits of up to ₹1.5 Lakhs u/s 80C of the ITA	Up to ₹1.5 Lakhs per financial year is applicable for tax deduction u/s 80C of the ITA

Choose Wisely

The benefits of PPFs and FDs are comparable in some respects, as they are both safe and allow you to park your corpus for many years. While FDs allow you to take loans against them, PPF schemes require you to wait for at least three years. Furthermore, it is easier to prematurely withdraw money from FDs than PPFs, as PPFs only let you make premature withdrawals after five years. Both investment instruments offer decent interest rates, and you need to consider several factors to determine which option is ideal for your requirements.