FD And EPF: Features and Benefits

FD and EPF are good options for risk-averse investors. EPF is preferred by people who are looking to save taxes along with investing for the future. Due to the government backing, the security it provides is unmatched. Also, the fact that the interest you earn is also tax-free adds to its attractiveness However, it comes with an extremely long lock-in with limited withdrawal options, that too from the 7th year. Check the benefits of both of them to understand these investment options.

Employee Provident Fund (EPF)

EPF stands for Employees' Provident Fund. It is a retirement benefits scheme where both an employer and employee contribute equally to this scheme. Both must contribute around 12% of the basic salary to this fund.  At the time of retirement, the employee gets a lump sum and interest on it.

• In this Employees' Provident Fund, both employee and employer contribute to this fund. The contribution is to the tune of 12% of the basic salary, with dearness allowance taken into account if paid.
• However, not all of an employer's contribution goes to EPF.
• An employer contributes around 3.67% of the 12% to this fund. The remaining 8.33% goes to this Employees' Pension Scheme.

Fixed Deposit (FD)

Offered by banks and NBFCs (non-banking financial companies), a fixed deposit is an instrument through which you grow a lump sum over a fixed tenor at a fixed interest rate and with the utmost safety.

• The interest rate remains unaffected by market fluctuations and you get guaranteed returns on maturity, that is, after the lock-in period.
• You can choose to get your interest periodically, or at maturity.
• Usually, the defining criterion for an FD is that the money cannot be withdrawn before maturity, but you may withdraw it after paying a penalty.

What are the Benefits of EPF?

There are plenty of benefits to investing in this Employees' Provident Fund. They are as listed below:

• Capital Appreciation
  There is a fixed rate of interest available in this EPF India scheme. Moreover, the EPF also earns an interest even when lying dormant.
• Corpus for Emergencies
  Because of specific premature withdrawal rules, the EPF can act as an emergency corpus.
• Corpus for Retirement
  The main reason people invest in the EPF is to get a retirement corpus. The corpus gives investors a sense of security.
• Tax Saving Scheme
  Employees’ Provident Fund comes under Section 80C of the Income Tax Act. Therefore, even the earnings from this EPF scheme are exempt from taxes.

What are the Benefits of Fixed Deposit?

The benefits and features of FD are listed below.

• The returns are assured and not affected by market fluctuations
• There is little to no risk of loss of principal
• FD interest rates offered by NBFCs are higher than those of banks
• FDs can be easily renewed, and you can also reap additional rate benefits on renewing your deposits
• Tax is deducted at source on the interest income as per the Income Tax Act, 1961. If your total income is not taxable, you can avoid TDS by submitting (Form 15G Form 15H if you’re a senior citizen)
• You can opt for periodic interest payouts to manage your monthly expenses
• Senior citizens often get higher FD interest rates

Note: If you find interest in saving money via a fixed deposit, get better clarity on that by using our FD Calculator.

Also Read:

Learn everything there is to know about the National Pension Scheme's tax benefits

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