Which is Better Investment Option: FD Vs VPF

Whether you’re salaried or self-employed, fixed deposits let you earn attractive returns of up to 8.15% per annum. But if you are eyeing the slightly higher 8.25% interest on VPF, remember, it is an exclusive benefit only salaried employees can enjoy.

So, if you are torn between FD vs VPF for your next investment, this quick guide will help you choose the smarter path for your financial goals.

Key Differences Between FD vs VPF

One of the key differences between FD and VPF is the eligibility criteria. While anyone can open an FD with banks or NBFCs, solely salaried individuals can open a VPF by requesting their employer. Here are the other differences between FD vs VPF:

What is FD?

Fixed deposits (FD) are investment instruments wherein you can deposit a lump sum amount for a specific tenure and earn interest income at a predetermined rate. You can opt for a monthly, quarterly or annual interest payout based on your financial needs.

Usually, you can open fixed deposits with banks or non-banking financial institutions (NBFCs) for 7 days to 10 years for interest rates going above 8% p.a. Banks might offer loans and credit cards against your fixed deposit to help you manage your financial needs.

What is VPF?

Voluntary Provident Fund (VPF) is an account where salaried employees can contribute to build a corpus for the future. It is in addition to the Employee Provident Fund (EPF), wherein you can earn interest at the same rate as EPF. 

You can avail tax deductions under Section 80C of the Income Tax Act, 1961, for your VPF contributions. Usually, your VPF comes with a lock-in period similar to EPF. You can request your employer to open a VPF account in addition to an EPF account if you want additional contributions.

FD Vs VPF: When Should You Choose?

You can choose between FD vs VPF based on your financial goals. For instance, if you need easy liquidity, emergency funds or need to save for short-term goals, you can choose a fixed deposit. 

It additionally helps you diversify your investment portfolio with high-risk market-linked equities. Investing in fixed deposits helps you reduce the underlying risk of your portfolio with safe and predictable returns. 

On the flip side, if you have a long-term goal, such as building a retirement corpus, and you are a salaried individual, you can choose VPF. Moreover, if you want to avail tax deductions under Section 80C, you can choose VPF. 

However, tax-saving fixed deposits, unlike regular FDs, offer the same tax benefit. As a result, to choose between fixed deposits and VPF, you need to identify your financial goal. 

FD vs VPF: Which is a Better Investment Option?

Fixed deposits with banks come with a DICGC insurance cover of up to ₹5 lakh. This makes fixed deposit investments a secure option. In addition, you can open multiple fixed deposits to consider FD laddering to multiply your wealth.

On the flip side, you can open only 1 VPF account, which is transferable if you switch jobs. Further, you can get secured credit cards against your fixed deposits to meet your financial needs. Usually, such credit cards do not require income proof or a credit score. 

Even though you can get loans against VPF, the purposes are limited, unlike loans against fixed deposits.  Nevertheless, you can choose between FD vs VPF based on your financial needs. Notably, interest rates for both these instruments are subject to change from time to time. 

Final Words

To choose between FD vs VPF, ensure you define your financial goals. If you want to earn up to 8.15% per annum as interest with a tenure of 3 years, you can seamlessly choose a fixed deposit over VPF.

Check out the Stable Money app for competitive FD interest rates. Book your FD now to earn up to 8.15% p.a interest.