PPF vs FD vs SIP: Which Is Better for You?

PPF, bank fixed deposits and mutual fund SIPs are three of the most common ways to save in India. They are often compared on returns alone, but they work very differently. PPF is a government scheme with a tax-free rate set every quarter. An FD is a bank deposit at a rate quoted for its tenure. A SIP is a market-linked investment with no promised return at all.

This guide compares the three on returns, safety, lock-in and tax, then puts the same money into each for 15 years.

PPF, FD and SIP at a glance

Returns: set, fixed or market-linked

PPF pays 7.1% for October–December 2026. The government sets the rate every quarter, so it can change over the life of your account. Interest is worked out monthly on the lowest balance between the 5th and the end of the month, and credited once a year on 31 March. Money paid in by the 5th earns interest for that month, which is why a deposit made by 5 April earns for the whole year. You can deposit ₹500 to ₹1.5 lakh each financial year, in one go or in instalments.

Bank FDs pay the rate the bank quotes for your tenure, and rates differ between banks. This guide uses 7% as an example. Most bank FDs compound quarterly, so a ₹5 lakh FD at an example 7% for 5 years grows to ₹7,07,389, an effective yield of 7.19% a year. A recurring deposit (RD) works the same way but takes a fixed amount each month.

SIPs in mutual funds have no set rate. Returns are market-linked, not guaranteed, and vary from year to year. SIP calculators, including ours, assume one steady yearly return, so the 12% and 9% used below are assumptions, not forecasts.

Risk and safety

PPF is a government scheme, and its value does not depend on markets. The balance only grows, at whatever rate the government sets.

Bank deposits are insured by DICGC up to ₹5 lakh per depositor per bank, with principal and interest counted together. Anything above that at one bank is not covered. Balances can pass the limit sooner than you might expect: in the 15-year RD example below, the balance passes ₹5 lakh by the end of the third year and finishes at about ₹39.7 lakh.

SIPs carry market risk. Your fund’s value rises and falls with the market, and over a short or unlucky period you could end up with less than a bank deposit would have paid, or less than you put in.

Lock-in and liquidity

PPF is the longest commitment. The account matures after 15 years, and you can then extend it in blocks of 5 years, with or without new deposits. Keeping up ₹1.5 lakh a year for one 5-year extension would take the 15-year example below from ₹40,68,209 to ₹66,58,288.

An FD ties your money up for the tenure you choose, and an RD for its set number of months. If you might need the money earlier, check your bank’s terms for closing a deposit early before you open it.

A SIP has no fixed tenure. You decide how long to keep investing and when to sell, but what you get depends on the market on the day you sell. Check the fund’s own terms before you invest.

Tax on each

PPF interest and the maturity amount are tax-free. In the old tax regime, your deposits also count towards the ₹1.5 lakh yearly limit for tax-saving investments. The new regime gives no deduction for them. Our guide to the new vs old tax regime explains when that deduction matters.

FD and RD interest is taxed at your income tax slab rate plus 4% cess. Banks deduct TDS at 10% (with your PAN) once interest from one bank passes ₹50,000 in a financial year, or ₹1 lakh for senior citizens. TDS is not the final word: the interest is taxed at your slab rate either way. In the RD example below, the interest earned each year passes ₹50,000 in about the fifth year.

SIP gains are taxed as capital gains when you sell. The rates depend on the type of fund and how long you held it.

The same money in all three: ₹1.5 lakh a year for 15 years

Here is a like-for-like example. Each option receives ₹22,50,000 over 15 years:

• PPF: ₹1.5 lakh deposited by 5 April each year, at 7.1% throughout
• RD: ₹12,500 a month for 180 months, at an example 7%
• SIP: ₹12,500 a month, at an assumed 12% or 9% a year

Three things stand out.

Before tax, PPF and the RD are close. PPF finishes ₹97,181 ahead, and the edge comes from timing. PPF’s ₹1.5 lakh goes in by 5 April and earns for the whole year, while the RD’s instalments arrive through the year. Paid into PPF monthly by the 5th instead, the same money would reach ₹39,44,599, a little less than the RD. Leaving each year’s PPF deposit until March would cost ₹2,69,695 by maturity.

After tax, the gap widens. At the 30% slab, tax and cess take ₹5,36,961 of the RD’s interest. A bank would have to pay roughly 9.4% on the RD for its after-tax interest to match PPF’s tax-free 7.1%. In a lower slab, or with no tax to pay, the gap is much smaller.

The SIP could finish well ahead, but nothing is promised. At 12% it beats PPF by ₹22,38,991, and at 9% by ₹6,97,339, before capital gains tax. At 6%, the same SIP would reach ₹36,53,410, less than both PPF and the RD before tax.

Which suits what goal

There is no single winner. Each fits a different kind of goal:

• A goal a few years away with a fixed date, such as a planned purchase: an FD for a lump sum or an RD for monthly saving gives a rate you know upfront and DICGC cover up to ₹5 lakh per bank.
• A long-term goal where you want certainty: PPF gives a tax-free, government-set return, in exchange for a 15-year commitment and a ₹1.5 lakh yearly cap.
• A long-term goal where you can live with ups and downs: a SIP has the potential for higher growth, but the result depends on the market and could be lower than a deposit.
• More than one goal: many savers use more than one, for example a deposit for near-term needs alongside PPF or a SIP for the long term.

Which mix suits you depends on when you need the money, how much a fall in value would worry you and your tax slab. Use the PPF, FD, RD and SIP calculators to test your own figures, and the income tax calculator to see whether PPF deposits would change your tax.

Unfamiliar term? Look it up in the glossary. This guide is general information, not personal financial advice. Rules and products vary by country and lender.