SIP vs FD vs PPF: Returns, Tax and Risk Compared (FY 2026-27)

The short answer

All three are ways to save regularly, but they behave very differently:

• SIP (systematic investment plan) invests a fixed amount every month in a mutual fund. Equity funds have the highest long-term growth potential but no guarantee and real short-term risk.
• FD (fixed deposit) locks a lump sum with a bank at a fixed rate. It is safe and flexible, but the interest is fully taxable every year.
• PPF (Public Provident Fund) is a government scheme paying 7.1% (October–December 2026), tax-free, with a 15-year lock-in and a ₹1.5 lakh yearly limit.

Use the SIP calculator, FD calculator and PPF calculator to run your own numbers.

Side by side

	Equity SIP	Bank FD	PPF
Return	Market-linked; historically ~10–12% a year over long periods	Fixed, about 6–7.5% today	7.1% now, reset every quarter
Risk	Can fall sharply in the short term	Very low; insured up to ₹5 lakh per bank by DICGC	Government-backed
Tax on returns	12.5% on long-term gains above ₹1.25 lakh a year; 20% if sold within a year	Taxed at your slab rate every year	Tax-free
Section 80C (old regime)	Only ELSS funds	Only 5-year tax-saver FDs	Yes, up to ₹1.5 lakh
Lock-in	None (ELSS: 3 years)	Chosen term; early withdrawal penalty	15 years; partial withdrawals from year 7
Investment limit	None	None	₹500 – ₹1.5 lakh a year

₹10,000 a month for 15 years

₹18 lakh invested in each case. SIP at an assumed constant return; FD as a new one-year deposit of ₹1.2 lakh each year, all reinvested at 7% compounded quarterly; PPF at 7.1% with the yearly ₹1.2 lakh deposited before 5 April.

	Value after 15 years (before tax)	After tax (30% slab investor)
Equity SIP at 12%	₹50,45,760	₹46,55,665 (12.5% on gains above ₹1.25 lakh, if withdrawn in one year)
Equity SIP at 10%	₹41,79,243	₹38,97,462
FD at 7%	₹32,78,834	about ₹27,06,000 (interest taxed yearly at 31.2% incl. cess)
PPF at 7.1%	₹32,54,567	₹32,54,567 (tax-free)

Before tax, a 7% FD and PPF finish almost level. After tax, PPF is clearly ahead for anyone in the 20% or 30% slab, because FD interest is taxed every year — at the 30% slab a 7% FD earns under 5% after tax. The equity SIP finishes highest, but only if markets deliver; a run of bad years near the end could leave it behind PPF.

Risk: what can go wrong with each

SIP. Equity markets can fall 30–50% in a crisis and take years to recover. Over 10–15 years, regular investing smooths the entry price (rupee cost averaging), but there is no guarantee. Equity is best for goals at least 7–10 years away.

FD. The main risks are inflation and tax: a 7% FD taxed at 30% barely keeps pace with 5–6% inflation. Bank deposits are insured by DICGC up to ₹5 lakh per depositor per bank, so spreading large sums across banks reduces risk further.

PPF. The capital is safe and the interest is tax-free, but the rate can be cut in any quarter, the yearly limit is ₹1.5 lakh, and the money is locked for 15 years, with only partial withdrawals from the seventh year.

Stepping up the SIP

The table assumes ₹10,000 a month for all 15 years, but most people's income rises. Increasing the SIP by 10% every year — ₹10,000 a month in year one, ₹11,000 in year two and so on — means investing ₹38,12,698 in total. At 12% a year that grows to about ₹86,83,849, roughly 1.7 times the value of the flat SIP. PPF cannot follow your income past ₹1.5 lakh a year, and FDs can, but only at FD rates. The SIP calculator has a step-up option to try your own increase.

Inflation: what the money is worth today

All of these figures are in future rupees. At 6% inflation, prices are about 2.4 times higher after 15 years, so dividing by 2.397 shows the value in today's money:

	Value after 15 years	In today's money (6% inflation)
Equity SIP at 12%	₹50,45,760	about ₹21.05 lakh
PPF at 7.1%	₹32,54,567	about ₹13.58 lakh
FD at 7%, after tax at the 30% slab	about ₹27,06,000	about ₹11.29 lakh

You put in ₹18 lakh in each case, and ₹18 lakh spread over 15 years is worth less than ₹18 lakh in today's money too — but the comparison shows why a taxable FD barely beats inflation for higher-slab taxpayers, while PPF and equity grow real wealth.

Other options worth knowing

• EPF and VPF: if you are salaried, your Employees' Provident Fund earns a government-declared rate that has usually been above PPF, and you can add more through the Voluntary Provident Fund. Interest on employee contributions above ₹2.5 lakh a year is taxable.
• Recurring deposit (RD): a monthly version of an FD, with the same interest rates and the same tax treatment.
• NPS: market-linked retirement savings with low costs; part must be used to buy an annuity at retirement, and employer contributions get a deduction even in the new regime.
• Debt mutual funds: steadier than equity funds, but gains on units bought from April 2023 are taxed at your slab rate, like FD interest.

Common mistakes

• Comparing pre-tax FD rates with tax-free PPF. A 7% FD and 7.1% PPF look the same, but after tax at the 30% slab the FD earns under 5%.
• Stopping SIPs when markets fall. Falling prices mean each instalment buys more units; stopping locks in the low point.
• Chasing last year's best fund. Pick a low-cost diversified fund (for example an index fund) and stick with it.
• Putting the emergency fund in equity. Money you may need within a year belongs in an FD or liquid fund.
• Missing the 5 April PPF deadline. Depositing later in the month loses that month's interest on the deposit.
• Ignoring TDS on FDs. Banks deduct 10% TDS once interest crosses ₹50,000 a year (₹1 lakh for senior citizens); if your income is below the taxable limit, submit Form 15G or 15H at the start of the year rather than claiming a refund later.
• Forgetting nominations. Add a nominee to every SIP folio, FD and PPF account so the money reaches your family without delay.

Liquidity

You can stop a SIP or sell mutual fund units at any time (except ELSS), usually receiving the money within a few working days. FDs can be broken early with a small penalty on the rate. PPF is the least liquid: loans are allowed from the third year and partial withdrawals from the seventh, but full withdrawal only at maturity, apart from limited premature closure for reasons such as serious illness or higher education.

Which to use for which goal

Goal	Good fit
Emergency fund (3–6 months of expenses)	FD or a liquid fund — safety and quick access matter most
Goal in 1–3 years (car, wedding, course fees)	FD or debt fund — avoid equity this close to the goal
Goal in 5–7 years	Mix of FD/PPF and balanced or hybrid funds
Retirement, child's education in 10+ years	Equity SIP for growth plus PPF for a tax-free, guaranteed base

Tax: old regime vs new regime

Under the new tax regime — the default for FY 2026-27 — there is no Section 80C deduction, so PPF, ELSS and tax-saver FDs give no tax saving when you invest. PPF still keeps its tax-free interest, which is often its biggest advantage anyway. Under the old regime, PPF, ELSS and 5-year tax-saver FDs share the ₹1.5 lakh 80C limit. Check which regime suits you with the income tax calculator.

A simple combined plan

Many salaried investors use all three: keep three to six months of expenses in FDs, put the full ₹1.5 lakh a year into PPF for a safe tax-free core if they can, and run equity SIPs for long-term goals, stepping the SIP up each year with their salary. The CTC to in-hand calculator helps you see how much of your monthly pay you can realistically invest.

Checklist

• Build the emergency fund (FD or liquid fund) first.
• Match the product to the goal's time horizon, not to last year's returns.
• Compare FD returns after tax at your slab rate.
• Use PPF for safe, tax-free long-term savings up to ₹1.5 lakh a year.
• Use equity SIPs only for goals at least 7–10 years away, and step them up yearly.