PF vs FD- Which is the Better Tax-saving Option

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There is no doubt that a strong financial plan plays a crucial role in every person’s life, whether they are planning for retirement or building an emergency fund. If we were to talk about safe investment options in India, then PF and FD are considered among investors’ most popular investment choices.

Compared to other best short-term investment options, both instrument is a good choice for investors concerned about risk. The problem here is that choosing the right investment option can be one of the most difficult decisions you will ever have to make.

PF vs FD- Which is the Better Tax-saving Option

What is a Fixed Deposit?

The fixed deposit is one of the most popular savings instruments banks, and non-banking financial institutions offer. FDs are considered one of the safest investment avenues, as the government of India fixes their fixed deposit interest rates, so market fluctuations do not impact the return on FDs. The purpose of a fixed deposit is to provide an individual with the opportunity to deposit a lump-sum amount and accrue fixed deposit interest rates over a predetermined period.

What is a Provident Fund?

The Provident Fund is a well-known investment instrument that the government of India backs to save on taxes. The Provident Fund has existed since 1968 and is considered one of the safest long-term investments. An essential goal of this policy was to encourage savings among salaried employees. There is a current interest rate of 7.1% on the PPF accounts. As a result of the government in India setting the interest rate, regulation of the subject is made every quarter. A significant benefit of investing in a PF is that it gives you a profitable return on your investment while providing you with a tax deduction.

Listed below is the comparative analysis of PF VS FD

Tenure

The amount invested in a PF gets locked in for 15 years and can be extended for another five years if you wish. Conversely, a fixed deposit investment has a tenure that ranges from 12 to 60 months. As a result, you can choose the tenure for the fixed deposit scheme with the best-fixed deposit interest rates, a feature that is not available with the PPF.

Withdrawal prematurely

When you invest in a PF, you can withdraw your money after completing the 5th year of your investment. However, there is a limit on the amount you can withdraw from the account. At any time, you can withdraw a fixed deposit prematurely and get a loan based on the fixed deposit you have made.

Loans and Benefits of taxes

It is only possible to take out a PF loan after three years. However, it is essential to remember that you can avail a loan against FD at any time in the future. By Section 80C, both PF and FDs can benefit from tax benefits. FDs must be invested for a minimum period to qualify for a tax deduction.

Amount of deposit

In a financial year, the minimum and maximum amount that can be deposited into a PPF account are 500 and 1.5 lakhs, respectively. In the case of FDs, there is no fixed limit on how much they can be invested.

Interest rate

In the case of PFS, the government sets the interest rate. There is currently an interest rate of 7.1% offered on the PF. The fixed deposit interest rates are determined by the individual bank or NBFC in charge of the account.

Conclusion

For risk-averse investors, PF and fixed-interest are both attractive options for investment. You should consider investing in a PF account to benefit from tax savings and the benefits of a long-term investment option. For those who want to accumulate a fund for a short period, or if you want to accumulate it for a particular period, you should consider investing in fixed deposits. An individual’s decision on whether he or she should make a fixed deposit or a personal savings plan depends entirely on his or her investment objective and future goals.

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