Employees Provident Fund (EPF) Vs Fixed Deposit (FD)
FD and EPF both are important investment & saving tools in India. Differences prove to be the key factors when deciding on the savings plan that you need to choose. The FD and EPF are both interesting saving schemes; the choice of pick depends upon the kind of goal you have in mind. Let us go for an in-depth analysis of EPF as well as FD to understand the differences between them.
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Employees Provident Fund (EPF) Vs Fixed Deposit (FD)
EPF and FD are two important investment schemes with a variety of benefits. If you want to invest, you first need to understand the purpose of investing. Choosing FD or EPF Depends on various factors such as whether you want to invest in long-term or short-term and much more.
Let us start by understanding both schemes to get a better clarity of the investment purpose and what to choose between the two.
What is Fixed Deposits?
Fixed Deposits come along with a lock-in period which doesn’t allow the investor to withdraw funds till the period is over moreover the amount invested is not taxable with a limit of 1.5 lakh for the financial year under Section 80 C and they offer an interest rate of 6.5% for the term of 5 years.
What is the Employee Provident Fund (EPF)?
Employee Provident Fund is an enforced and almost mandatory saving scheme for all salaried employees wherein they come and contribute 12% of their salary and the employer contributes 8.33%. EPF gives an interest of 8% which can vary.EPF is a solid scheme for Retirement Planning.
EPF VS FD: Key Difference Between FD And EPF
The Key differences between Fixed Deposit and EPF are mentioned in the table below:
|
EPF VS FD |
Fixed Deposit | Employee Provident Fund |
|
Lock in period |
A tax-saving long-term deposit has a lock-in period of 5 years wherein you cannot redeem your investments | There exists a Lock in 15 years as it is a retirement planning scheme so investors can’t sell their deposits or redeem them. |
|
One Time Deposit |
The minimum one-time deposit for a fixed deposit account is anywhere from 1000 to 10000 depending upon the investor's bank | In EPF there is no minimum one-time investment for the investors. |
|
Rate of Investment |
In a fixed deposit account, an investor can be rewarded with an interest of 7-7.5% on an average of 5 years of investment | In EPF there is an average interest of 8.65% on the amount invested by the investor. |
|
Tax on Returns |
In a fixed deposit account, the investor incurs a tax on the interest gained by him | In EPF there is no tax incurred on the gains after 5 years. |
|
Net Returns |
In a fixed deposit account, an investor can get up to 5.7-6% on their investments upon maturity | In an EPF account, the investor can get gains of up to 8.65% on their investments at the time of maturity. |
What To Choose EPF OR FD?
Let us understand this with the help of an example:
- Suppose that you need to save up money for an emergency fund despite its high interest. You may not want to put that money in EPF due to its rigid nature and would be investing in an FD due to the more flexible lock-in period.
- However, If you were to plan for retirement you may not want to invest in an FD as you may not want to withdraw from that in the short term.
So there is a rigid nature in the form of a long 15-year lock period and at the same time, the high interest rate would help incur more returns at the time of withdrawal so the choice of your saving scheme completely depends upon what is suitable for your goal of investing that money.
Conclusion
Choosing a particular type of investment completely depends on personal goals and choices, therefore it is advised to completely go through the above-mentioned points to understand the difference and then only come up with a decision.
Also Read -
What Is PPF? What Are Its Benefits?
How Investing In PPF Benefits Me?
Disclaimer: This article is issued in the general public interest and is meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive and should research further or consult an expert in this regard.
