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Public Provident Fund vs Fixed Deposit Calculation: If you invest Rs 1.5 lakh every year for 15 years, you will get tax free returns in PPF, whereas in FD, the profit will be reduced after tax is deducted. In PPF, the money remains locked for 15 years, but in case of emergency, a loan is also available and partial withdrawal can also be done. Let us tell you in which of the two, PPF and FD, you will get more benefit by investing.
PPF vs FD Calculation: Many people in our country do private or government jobs. They also get a salary every month, which covers their household expenses and also fulfills other needs. Some people invest this money in the right place while some people do not know how to invest. Today we will talk about the two most popular and safe investment options. These are Public Provident Fund i.e. PPF and Bank’s Fixed Deposit i.e. FD.
Now the question is that if you invest Rs 1.5 lakh every year, then which option will give you more money after 15 years? This calculation has been explained in a very simple way in a short video by a popular financial YouTuber, Ankur Wariku.
How much return will you get in PPF?
PPF is a government scheme, which is a completely safe investment option. Currently its interest is 7.1% and the biggest thing is that the returns are completely tax free. Meaning income tax will not deduct a single penny. Every year you can invest a maximum of Rs 1.5 lakh. Suppose you invest Rs 1.5 lakh every year for 15 consecutive years. Your total deposit amount in 15 years will be Rs 22.5 lakh.
Now talking about compounding, with 7.1% interest, after 15 years your PPF account will be worth around Rs 42 to 43 lakh. That means you have invested Rs 22.5 lakh and the total amount you will get will be around Rs 42.7 lakh. Meaning the profit will be around Rs 20 lakh and that too completely tax free. Your money has more than doubled and not a single rupee of tax will be spent.
How much return will you get by investing in FD?
Suppose a bank is giving you 7% interest (some banks give only 6.5-6.8%). If you make an FD of Rs 1.5 lakh every year and keep re-depositing the interest, then after 15 years the total amount will be around Rs 35 to 36 lakh. That means you invested 22.5 lakhs and got a total of 35-36 lakhs. The profit will be only Rs 13-14 lakh. Tax is deducted every year on FD interest. If you are in the 30% tax bracket, a large portion of the profits will go to the government. Net returns will become even lower. Meaning, in PPF you are getting full profit of Rs 20 lakhs, whereas in FD, the profit of Rs 13-14 lakhs will be reduced to Rs 9-10 lakhs after deducting tax.
Another amazing thing is that you can extend PPF for 5 years even after 15 years. If you extend for just 5 more years after completion of 15 years, then with 7.1% compounding, Rs 42 lakh will become approximately Rs 57-58 lakh in 20 years. That means additional profit of Rs 15-16 lakh in just 5 years, that too without investing anything and will be tax free. Nothing like this happens in FD.
If you are investing for a long time
If you are investing money for a long time, for child’s education, marriage or retirement, then PPF is a better option. FD is good when you need money in 3-5 years or you are a senior citizen and want interest every month. In PPF, the money remains locked for 15 years, but in case of emergency, a loan is also available and partial withdrawal can also be done. Nowadays, account can also be opened online, you can open an account in bank or post office. New people can also start easily. In a government scheme like PPF, the government takes your guarantee. If you want to see the calculation of any other amount, then you can also check it yourself through online PPF calculator or FD calculator.
