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FD vs PPF vs SIP: One Sum, Three Very Different Machines
Regional Finance · 7 min read · Last updated September 2026
The same ₹1 lakh, computed three ways
| Instrument | Assumption | 5-year outcome | Liquidity |
|---|---|---|---|
| Fixed deposit | 6.5% compounded quarterly | ₹1,38,042 | Breakable (penalty) |
| PPF | 7.1% compounded annually | ₹1,40,912 | Locked 15 yrs (partial rules) |
| SIP (equity fund) | 12% assumed, volatile | ₹4,12,432 on ₹60k/yr invested | Open-ended |
The FD and PPF figures are contract-like: the rate is the deal. The SIP figure is a model of a volatile path — the same period could land materially lower. That difference in certainty, not the headline rate, is what separates the three.
Tax treatment changes the ranking
FD interest is taxed as income at your slab, so a 30%-bracket investor keeps ~4.55% net on a 6.5% FD. PPF is exempt-exempt-exempt — its 7.1% is fully kept. Equity SIP gains held over a year attract long-term capital-gains tax only on redemption above the annual exemption. Net-of-tax, PPF often beats the FD despite similar headline rates.
Match the instrument to the goal
- Money needed within 3 years (emergency fund, car deposit): FD or similar debt — certainty is the product.
- Long-horizon, tax-sensitive, fixed-income share (retirement bond sleeve): PPF — rate plus EEE status.
- 7–10+ year growth goals: SIP into diversified equity — higher expected return, tolerated volatility, no guarantee.
Run your own comparisons in the FD Calculator, the PPF Calculator and the SIP Calculator — then decide per goal, not per portfolio.
Try the calculators
Worked example: Fixed Deposit (FD) Calculator at its default inputs
This is the answer Fixed Deposit (FD) Calculator gives before you touch anything — the defaults as shipped, computed live rather than copied from a sample.
| Input | Default |
|---|---|
| Deposit Amount (₹) | 100000 |
| Interest Rate (%) | 7.5 |
| Tenure (years) | 3 |
| TDS Rate (%) | 10 |
Result: Maturity: ₹1,24,971.64
The steps behind that answer
- Step 1: Rate = 7.5%
- Step 2: Maturity = ₹100000 × (1 + 7.5%/4)^12 = ₹1,24,971.64
What Deposit Amount (₹) does to the answer
Hold every other field still and move only deposit amount (₹).
| Deposit Amount (₹) | Result |
|---|---|
| 50,000 | Maturity: ₹62,485.82 |
| 100,000 | Maturity: ₹1,24,971.64 |
| 150,000 | Maturity: ₹1,87,457.46 |
If the rows barely differ, deposit amount (₹) is not your lever — change a different input. If they swing widely, get that number right before trusting the total.
Related guides
Three products, three different contracts
A fixed deposit locks a lump sum for a term at a stated rate. A public provident fund is a long-horizon, government-backed account with annual contribution limits and a lock-in. A systematic investment plan buys market-linked units monthly. The comparison is not which return is highest, but which contract matches the money's job.
Money needed in two years does not belong in a market-linked plan regardless of expected return, because the horizon cannot absorb a drawdown. Money not needed for fifteen years is poorly served by a product that barely beats inflation.
Tax treatment changes the ranking
Interest on deposits is usually taxed as income each year, while some long-term accounts are exempt and market-linked gains are taxed at their own rates with their own holding periods. A pre-tax comparison can therefore reverse once tax is applied.
Compare post-tax returns at your own marginal rate. The difference between two products is often smaller than the difference between two taxpayers.
Liquidity is a feature with a price
A deposit can usually be broken with a penalty; a provident fund allows partial withdrawal only under rules; market-linked units can be sold but may carry exit loads and capital-gains consequences.
Price that flexibility before choosing. An emergency fund parked in a locked product is not an emergency fund, and breaking the lock at the wrong moment can cost more than the extra return.
Frequently asked questions
Which gives better returns: FD, PPF or SIP?
At 5 years on ₹100,000: FD at 6.5% ≈ ₹1,38,042, PPF at 7.1% ≈ ₹1,40,912, and a ₹20,000/year SIP at 12% assumed ≈ ₹4,12,432 on ₹300,000 invested. But the SIP number is a volatile-market model, not a promise — expected return and certainty are different things.
Is PPF better than FD?
For long-horizon money, usually yes: slightly higher typical rate, fully exempt returns, but a 15-year lock-in. For money you may need sooner, the FD’s liquidity wins.
How is SIP different from FD and PPF?
FD and PPF are debt contracts with fixed rates; a SIP is a method of investing in market assets whose returns fluctuate. Higher expected return comes with real downside years.
How are these three taxed?
FD interest is taxed at your income slab. PPF is fully exempt. Equity fund gains held over a year are long-term capital gains, taxed on redemption above the annual exemption — timing is under your control.
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