When it comes to planning for your retirement, you should be careful of the instruments that you choose, to build your nest egg. This is because your active source of income shall soon cease to exist and so the amount of risk you can afford to take, also drops. You can select from long-term investments such as provident funds, bonds, and real estate and short-term instruments like ELSS funds, fixed deposits, and trading options.
However, two of the most common choices in this regard remain to be provident funds and fixed deposits for senior citizens and you can select between the two based on your financial goals, risk appetite, and current financial capacity.
Look at how the two instruments fare and make a decision accordingly.
Rate of interest
The rate at which your FD or your PPF investment matures over the tenor is regarded as the interest rate. Based on economic condition and other factors the RBI revises the interest rate every quarter. In case of PPFs the rate of interest since 1st October 2018 stands at 8% per annum. On the other hand, FDs owing to the repo rate revision are likely to fetch you higher interest. For instance, if you choose to invest in cumulative Fixed Deposit for a tenor of 36 months with issuers like Bajaj Finance, you can get up to 8.75% interest return on your investment. This rate goes up to 9.10% on the same terms for senior citizens.
Tenor and lock-in duration
Fixed deposits have a lock-in period of a few days or months. In case you choose a tax-saving FD this timeframe is 5 years. On the other hand, PPF is a long-term investment option and has a lock-in period of 15 years before which you cannot dissolve the fund. However, you can partially withdraw from your PPF investment after completion of 5 years. On the other hand, you can withdraw from an FD when you feel the need to, but you may have to pay a charge and forgo some interest. So, choose between the two depending on your needs and goals.
Fixed deposits and PPF can help you reduce your tax burden considerably, as you can claim annual deductions basis your contributions up to a total of Rs.1.5 lakh per year, under Section 80C of Income Tax Act. Moreover, the maturity sum in case of provident fund (PF) also enjoys an EEE or Exempt, Exempt, Exempt status as per taxation norms. This is not the case for FDs as interest income of up to Rs.5,000 on company FDs and up to Rs.10,000 on a bank FD is exempt from tax. For bank FDs the limit increases to Rs.50,000 if you are a senior citizen. So, weigh your flexibility and then decide between the two options.
Safety of Your Money
Both PF and FDs are highly safe investment options. They park your money away from market fluctuations and offer returns as per pre-determined rates. In case of FDs, a high CRISIL and ICRA rating further promise safety of your investment. On the other hand, PPFs are backed by the Government of India and are equally safe. You can trust that you will get the amount due to you upon maturity, without any delay or discrepancy.
Minimum Investment Amount
In case of a fixed deposit, you can start by investing as little as Rs.25,000 with issuers like Bajaj Finance and there is no end to the maximum amount that you can invest. On the other hand, you can deposit a minimum of Rs.500 or a maximum of Rs.1.5 lakh per annum in your PPF account either as a lump sum or in smaller instalments throughout the year.
While these points will help you understand both options, the best thing for you to do is to add both to your portfolio. Don’t think only about your present requirements, but also consider life post retirement. To stay financially independent build a portfolio with both instruments in mind.