Which one is better option for tax saving, VPF, PPF or tax saving FD?

Voluntary Provident Fund, covered under Section 80C, is a voluntary payment to the PF account by salaried people in addition to EPF. However, unlike EPF, your contribution does not have to be matched by your employer. You can contribute up to 100% of your basic pay and dearness allowance. 

The catch is that once you opt for contributing to VPF, you cannot discontinue for a minimum period of five years. There are no restrictions on when you can withdraw it. If you do choose to do it before the completion of five years, then the accumulated amount will get taxed. Otherwise, it enjoys the EEE benefits (exempt-exempt-exempt). There are no limitations on premature withdrawals. The interest rates are usually determined by the government every year. But, if the proposed revision is accepted, then it would be around 8.6%.

 

What Is PPF?

Public Provident Fund is a government incentive for everyone not covered under EPF or VPF. For it to remain active, you must invest every year. However, the total deposits per year are capped at 12 per year. The minimum amount is 500, and the maximum is 1.5 lakhs. There is a lock-in period of 15 years. Partial withdrawal, once per year, can be made from the fifth year onwards.

Loans are available against the deposit from the completion of one year of opening the account and making the deposit up to the completion of five years. The current rate of interest that an individual gets is 7.9% as of August, 2019. This accumulated principal and interest can be withdrawn at maturity. Even though the rate of interest might be relatively low, the fact that neither the interest nor the corpus is taxed makes the net rate higher.

 

What Is Tax-saving FD

The current tax-saving FD rates vary from 7.25%-8%. The tax-saving FD interest rates for senior citizens are usually higher by 0.25%-0.5%. Of course, not every bank may show this distinction. Tax-saving FDs are usually invested for a minimum period of 5 years. Unlike VPF and PPF, no premature or partial withdrawals are permitted. The deduction for a tax-saving FD is up to 150000 subject to it being invested for at least 5 years and up to 10 years.

 

Making the Choice

Each of these investment vehicles has its own benefits. Of course, a lot depends on what your requirements are. If you're looking for a long-term investment, then PPF is the better choice. Besides, PPF can't be created online. It has to be done through a bank or a post-office. FDs can be created online, as well. If you need the money after five years for any subsequent investment plans, then tax-saving FD is better for you. Of course, if you are a salaried individual, the question is only between VPF and FD. Since VPF allows partial withdrawal, but FD doesn't, VPF provides financial flexibility.