Where Should You Invest FD or PPF in 2020?
By Anupama Deshpande | December 02, 2019

A Fixed Deposit (FD) is the most popular, easy and traditional form of investment in India where in you earn a fixed rate of interest on the funds that you have deposited and can also create long term wealth. A tax saving FD is a FD made for atleast 5 years of term with a view of getting an income tax benefit under section 80C of the Income Tax Act, 1961. Still there are some points of differences between them such as lock in period, mode of investment etc. After reading this article, you will be able to decide where to invest between tax saving FD or PPF in FY 2020.

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On the other hand, Public Provident Fund (PPF) is a scheme of long term investment offered by the Central Government. It is one of the most popular schemes for investment in India. Government offers guaranteed rate of interest on it. The main aim behind launch of PPF by the government is to provide retirement security to self-employed people who have no PF funds.

Both are safe investments which provide fixed interest income. One can invest in any of them according to his liking. However there are certain points which you need to understand and keep in mind before making investment of your hard earned money in any of them. Detailing below such significant points for your reference which will answer your question: Where Should You Invest FD or PPF in 2020?

Tax saving FD comes with a lock in period of 5 years while in case of PPF, it has a lock in period of 15 years from the date of investment.

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In tax saving FD, you can invest from Rs 1,000 to Rs 1.50 lakh. In case of PPF, you can invest Rs 500 to Rs 1.50 lakh in a financial year. It is to be noted that in a PPF account, you need to invest atleast Rs 500 p.a. in order to avoid a penalty.

One can open tax saving FDs either in 'Single' or 'Joint' mode of holding. If the mode of holding is joint, the tax benefit is available only to the first holder. PPF can be opened only in single name and joint holder is not allowed.

Under tax saving FD, the interest on deposit can be either monthly, quarterly or can be reinvested. In case of PPF, interest is paid only on maturity.

Both investments qualify for tax benefit under section 80C of the Income Tax Act. Whatever amount you invest, you will save tax on that amount.

Whole withdrawal amount is tax free in case of PPF which means investment as well as interest earned on it. As far as tax saving FD is concerned, the interest portion is taxable as per the investor's tax bracket in the year it is received, however, one can claim a deduction under section 80TTA (non-senior citizens) and 80TTB (senior citizens) of the Income Tax Act.

A tax saving FD requires a lump sum investment while in case of PPF, you can invest either lump sum amount or monthly investment whatever suits you.

Premature withdrawal is not allowed under a tax saving FD while you can withdraw partial amount after 6th year in case of PPF.

The rate of interest is higher for Senior Citizens under tax saving FD while there is no such benefit available to senior citizen under PPF.

Loan against tax saving FDs are not allowed. Loans can be taken under your PPF account against your deposit between 3rd and 6th year.

Between PPF and tax saving FD, where you should invest is mostly dependent upon the objective behind investment. If you want to invest for the retirement purpose, PPF is preferred as it is an ideal investment option for everyone investing for retirement but if you need money after 5 years then you should invest in tax saving FD. Further, the interest income is taxable under tax saving FD so the effective rate of return is lower which the interest income is fully tax free under PPF investment.

We hope this article will give you all the differences between these two types of investment and now you can compare both and use your own wisdom to invest in any of two.