If you’re planning to invest Rs 1.5 lakh annually for 15 years and are confused whether to choose PPF (Public Provident Fund) or FD (Fixed Deposit), this guide will help you understand which option can yield better returns in the long run.
Public Provident Fund (PPF)
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Current Interest Rate: 7.1% per annum (subject to quarterly revision by the government, but generally stable)
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Investment Limit: Up to Rs 1.5 lakh per year
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Tenure: 15 years
How it grows:
Investing Rs 1.5 lakh every year for 15 years totals Rs 22.5 lakh. With a 7.1% interest rate compounded annually, the maturity amount after 15 years will be approximately Rs 40.68 lakh.
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Interest earned: Rs 40.68 lakh – Rs 22.5 lakh = Rs 18.18 lakh
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Tax benefit: Interest income is completely tax-free under the EEE (Exempt-Exempt-Exempt) status.
Fixed Deposit (FD)
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Interest Rate: Currently between 6.5% to 7.5% for 5-10 year deposits; we assume 7% for this calculation
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Investment: Rs 1.5 lakh per year
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Tenure: 15 years (opening a new FD every year)
If you invest Rs 1.5 lakh every year for 15 years in a 7% FD, the total corpus will be about Rs 41.32 lakh.
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Interest earned: Rs 41.32 lakh – Rs 22.5 lakh = Rs 18.82 lakh
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Tax: Interest is taxable as per your income tax slab (10%, 20%, or 30%)
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For someone in the 30% tax bracket, tax on interest is around Rs 5.65 lakh.
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Net amount after tax = Rs 35.67 lakh
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If the FD interest rate is 7.5%, the pre-tax maturity could be Rs 44.11 lakh, but after tax, it may still be less than the tax-free returns of PPF.
Which One is Better?
| Scenario | Better Choice | Reason |
|---|---|---|
| Tax slab 20% or 30% | PPF | Tax-free interest makes PPF more profitable |
| Tax slab 10% or 0% | FD (at 7.5% or above) | Slightly higher post-tax returns possible |
| Need short-term investment | FD | FD offers flexibility with shorter tenure |
| Long-term investment (15 years) | PPF | Offers tax savings and better long-term growth |
Summary
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PPF has the advantage of tax-free returns, making it ideal for investors in higher tax brackets or those looking for a safe, long-term investment.
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FD may offer slightly better returns before tax but loses out to PPF after considering taxes, especially for higher-income taxpayers.
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For short-term goals or liquidity needs, FD is more flexible.
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For long-term goals like home loan repayment or retirement planning, PPF is often the smarter choice due to tax benefits and stable returns.
