Which Investment Option Is Better- Employee Provident Fund or Fixed Deposit?

You should not only look for ways to earn more; but also look for better and efficient ways to multiply your earnings. The Employee Provident Fund or more commonly known as Provident Fund, and Fixed Deposits are the two most popular investment options used by salaried professionals to multiply their earnings.

Provident funds are an effective way to build a substantial retirement corpus for the salaried individuals. In this mandatory scheme that comes under The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, employees must put 12% of their basic pay along with DA in their PF account.

Fixed deposit is an investment instrument widely offered by both banking and non-banking financial companies (NBFCs). Fixed deposit is the most preferred investment option for investors across all categories as it offers stable and high returns as compared to other fixed-investment instruments.

FD vs. PF: Which one should you choose?

While both FD and PF offer some considerable benefits like stable returns and the safety of the principal amount, FD, holds a higher position with its few distinctive features.

PF investments are highly debt oriented and do not contain any equity exposure. You may earn negative returns from EPF investment when inflation is high. Investing in fixed deposits with short investment tenors will not only protect your funds against inflation but also cover the risks of other high-risk investment instruments in your portfolio. Here are a few comparison points for your better understanding –

  1. Tenor

For PFs, the amount that you invest in will be locked in for a minimum period of five years. However, when you invest in FDs like Bajaj Finance FD, you get flexibility to choose tenor (ranging from 12 to 60 months). Hence, it is easier for you to spread your principal amount across multiple FDs with varying tenors and varying interest rates.

  1. Investment amount

The investment amount for PFs is fixed. The maximum amount that you can contribute towards your PF account is up to 100% of your salary (basic + DA). Any contribution over and above the mandatory 12% goes to VPF (Voluntary Provident Fund) account.

FDs offer high flexibility in terms of the investment amount. You can invest with a minimum deposit amount of INR 25,000. There is no limit on the maximum amount which you can invest in an FD.

  1. Interest rate

The current rate of interest on your EPF investment is 8.55%. Company fixed deposits like Bajaj Finance Fixed Deposit offer Higher fixed Deposit rates up to 8.75% currently, which can go up to 9.1% for senior citizens.  

  1. Loan against deposit

You can partially withdraw your EPF while in the job. However, you need to follow a lot of statutory procedures. With FDs, you can avail a loan against FD without breaking your FD. Most banks offer loans up to 75% for cumulative FDs and up to 60% for non-cumulative FDs.

Why you should invest your Provident Fund corpus in Fixed Deposit

It is important that you invest your EPF funds in high-growth investments so that you can continue to earn good, stable returns even when the inflation is high. The safety of your investment is of utmost priority. Fixed deposit is one of the safest investment instruments that offer high capital growth while ensuring the safety of your capital amount.  Some company fixed deposits like the one from Bajaj Finance are accredited by highly reputed third-party agencies like CRISIL and ICRA. This means your investment is safe and returns are assured. With online FD calculator, you can calculate and compare the return on your investments in advance and make a decision based on the same. You can manage your FD investment yourself without any professional help using Experia- your online fixed deposit account.

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