The investments made in the current market conditions can be risky and can even cost your capital investment, but there are sources that can help you gain better returns from your investments even in such an unstable market situations. You can invest in sources like Public Provident Funds, Fixed deposits and Mutual funds, but it is important that you have basic knowledge about these sources of investment.

They say that half knowledge can be dangerous, well it applies perfectly regarding investments. When investing in any of these sources, you should have all the necessary information about them.

Public Provident Fund V/S Fixed Deposits V/S Mutual Funds

Fixed deposit is a saving cum investment source offered by financial institutions. In an FD, the investor deposits his money in the banks and gain a return on a yearly basis. In a PPF, the investor keeps depositing the money till an agreed period, and gains return when the term of deposit ends. In Mutual Funds, the investor invests money in the shares and stocks of the company and gains benefits according to the company’s performance in the stock exchange.

Which form of Investment is Better?

When investing, it is important that you invest in a source which benefits you the most. The benefits that are derived from the investment sources may vary according to the investor’s preferences. You can classify the benefits on the following grounds.

Investment Tenure: Investment sources like PPF and FDs are tenure bounded, which means that after an agreeable duration of time, the invested capital is returned to the investor. On the other hand, mutual funds have shares which are not tenure bounded and can be kept for a longer duration.

Returns security: Investments can be risky, and due to the market conditions, returns can be fluctuating and untimely. However, this does not apply to PPFs and Fixed deposits. The market fluctuations may affect the stock market returns substantially, but as the PPFs are curated by the government and Fixed Deposits are governed by the Reserve Bank of India (RBI), the returns from PPFs and FDs might change only if there are changes in the economic policy. However, if you invest in a Fixed Deposit account offered by NBFCs, you can gain stable profits even in times of economic reforms

Taxation: The Income tax department charges taxes on earnings if it exceeds a limit. Mutual fund earnings are taxable, and you cannot avail deductions on the mutual fund investment. As PPFs are curated by the government, the income generated by them is not taxable, and you can avail tax deductions on PPF investments. FDs are taxable too. You will be charged with Tax Deduction at Source (TDS) if your FD income exceeds more than INR 10,000. You can avoid TDS deduction by filing a 15G or 15H form. You can also use FD investment amount for tax deductions.

Public Provident Fund V/S Fixed Deposits V/S Mutual Funds

Liquidity: In times of emergency, we tend to liquidate our investments for funding the financial needs. But sometimes while liquidating our investments and financial savings, we have to go through a tough documentation process.

These processes can cause inconveniences, so it is necessary to invest in a source that offers faster liquidity. Since Mutual Funds are an investment in shares and stocks, they can be easily liquidated with the help of a stock broker and get your investment liquidated on the same day. Usually, PPFs have longer procedures to get the investment money. You can withdraw your money after 7 years of investment; but if you withdraw your investment before 7 years, you will have to pay the penalty for liquidating your investment before time. The same applies to Fixed Deposits. If you withdraw your money before the maturity period, you will have to pay penalty charges for early withdrawal, whereas, it takes 2-3 days to get you FD liquidated.

Investment plays an important role in shaping the future of an individual. Thus, it is important that you research well before investing in any investment sources. However, FDs can help you with better returns, security and investment safety which makes it more preferable for investment.