Assumptions
₹1.5 lakh invested at the start of each year for 15 years (₹22.5 lakh in total). The FD pays 6.5% compounded quarterly, and the debt fund earns the same effective yield before tax, so the only difference between them is when tax is paid. PPF earns the current 7.1% and is tax-free.
- FD: compounded quarterly; interest is taxed every year at your slab (plus 4% cess), which reduces what compounds.
- Debt fund: units bought after 1 April 2023 are taxed at your slab on the gain, but only when you sell. We assume one sale at the end.
- PPF: tax-free interest and maturity. Under the old regime, deposits also qualify for the ₹1.5 lakh deduction, which isn't counted here.
| Your tax slab | Bank FD | Debt fund | PPF |
|---|---|---|---|
| No tax | ₹39.2 lakh | ₹38.6 lakh | ₹40.7 lakh |
| 5% | ₹38 lakh | ₹37.8 lakh | ₹40.7 lakh |
| 10% | ₹36.9 lakh | ₹37 lakh | ₹40.7 lakh |
| 20% | ₹34.8 lakh | ₹35.3 lakh | ₹40.7 lakh |
| 30% | ₹32.8 lakh | ₹33.6 lakh | ₹40.7 lakh |
Value after 15 years, after tax. Computed at build time with steady rates; actual FD and fund returns vary.
What the table shows
- With no tax to pay, PPF's higher rate simply wins, and the FD and debt fund end level at about ₹39.2 lakh.
- In the 30% slab, the FD falls to ₹32.8 lakh, the debt fund keeps ₹33.6 lakh thanks to deferring tax, and PPF reaches ₹40.7 lakh. Tax-free compounding is worth a lot over 15 years.
- Deferral helps even at the same rate. The debt fund beats the FD in every taxed slab because its gains compound untaxed until you sell.
But liquidity matters too
PPF locks money for 15 years, with partial withdrawals only from the seventh year. FDs can be broken with a small penalty; debt funds can be sold any working day, but their value can dip when interest rates rise. The right mix depends on when you'll need the money: PPF for long-term goals, FDs or a liquid fund for the emergency fund, and a debt fund for medium-term money in higher slabs.
Compare with your own numbers
Try the FD calculator with your bank's rate and your slab, the PPF calculator for your deposits, and the income tax calculator to confirm your slab. Senior citizens should also look at the SCSS calculator, which currently pays 8.2%.