Got overwhelmed by seeing so many investment options and not able to decide which one is actually most profit investment option from FD vs Mutual Fund vs PPF?
Well, I can totally understand your confusion hence, I have prepared an extensive guide so that you can know the difference between a fixed deposit, mutual fund and public provident fund (PPF).
So without wasting time – Let’s get started!
Table of Contents
What is FD, Mutual Fund, and PPF
Before checking out which investment option is best for you, let quickly revise all these investment options.
Fixed Deposit
Fixed deposit is an investment option where you invest a lumpsum amount for certain time period like few months or years, and you get a return on your investment that is equivalent to the inflation or sometime the return can be bit higher or lower both compared to inflation.
You can do a FD with your bank, post office, NBFCs, etc.
Mutual Fund
Mutual funds is investment option where different asset management companies collects the money from thousands of investors and invest that money on their investors behalf by investing in stock market, bonds, treasury bills, etc.
To invest in mutual fund you need to open a trading account through any broker of your choice like Indmoney, Coin by Zerodha, etc.
Even you can open a trading account or demat account with your bank also, but usually they charge higher fees then other third party brokers.
Public Provident Fund (PPF)
A PPF is a long term saving scheme available for every citizen by the Government of India, where you can invest a lumpsum amount or can contribute some amount every month upto Rs. 1.5 Lakh in a financial year.
Government pay you interest on your investment annually and unlike the mutual fund or fd, the contribution made in PPF are tax exempted under 80c.
Comparing FD vs Mutual Fund vs PPF
Now we have an idea what are these 3 different option available to you, let’s check out how they are different from each other on different parameters.
Safety On Your Investment
- FD – Fixed deposit are although considered as a safe investment option but do remember in the worst situation RBI only gives the insurance of upto 5 Lakh, hence they do a contain a little risk.
- Mutual Fund – Mutual funds are the most risky investment option from all three, because they invest your money further in stock market and different debt instruments that contains both risk and are volatile in nature.
- PPF – PPF are backed by the Indian Government hence, they are the most safest option for you if safety is your main priority.
Winner In This Parameter 🏆 – PPF (can consider FD too)
Returns On Your Investment
- FD – A FD offers a fixed return that can range anywhere between 5%-8% annually if you do a FD with a bank or post office.
- Mutual Fund – As Mutual fund takes the most risk hence they tend to provide the highest returns to in the long term ranging between 12%-24% annual compounded returns.
- PPF – The interest rate on PPF keeps changing every quarter based on market conditions and it also usually provides the return between 7%-9% annually.
Winner In This Parameter 🏆 – Mutual Fund
Taxation
- FD – The returns on FD are tax empted upto Rs. 10,000 in a financial year for mens, while for women this limit is higher that is up to Rs.40,000 and for senior citizens the tax exemption limit is Rs. 50,000 but after that you have to pay a flat 10% TDS on your returns.
- Mutual Fund – Mutual funds are taxed based on the financial instrument they invest in, if they invest majorly in equities then you will be taxed as per that, or if they invest in debt funds you will be taxed as per tax on debt funds. But here you can invest in tax saving funds which are tax exempted upto Rs. 1.5 Lakh.
- PPF – Returns generated on PPF are 100% tax free, with that the contributions you make in PPF are also tax exempted under 80c.
To know how mutual fund taxation works checkout our in depth guide on Tax on Mutual Funds in India
Winner In This Parameter 🏆 – PPF
Liquidity and Lock In
- FD – There is a lock in period in FD, where if you break your FD even a day before the maturity date then the returns will be decreased.
- Mutual Fund – In mutual funds there is no lock in period except in the case of ELSS or tax saving funds, where there is a lock in period of 3 years. While there will be an exit load applied to you if you sell your mutual fund before a certain period that can differ from 15 days to 1 year.
- PPF – PPF is a long term saving scheme hence, there is a lock in period of 15 years, even for partial withdrawal there is a lock in period of 5 years, while if you do any premature withdrawal then the penalties will be imposed on you.
Winner In This Parameter 🏆 – Mutual Fund
Beating Inflation
- FD – Usually fixed deposit never able to beat the inflation, they usually give the net returns almost equivallent to the inflation rate.
- Mutual Fund – Mutual funds are the best investments where they easily beat the inflation and provide high returns on your investment.
- PPF – While PPF also provide low interest rate compared to mutual fund, but being Government of India involved in it, they tend to provide a bit positive Returns after inflation adjustment.
Winner In This Parameter 🏆 – Mutual Fund
Key Difference Between FD, Mutual Fund, and PPF
| Feature | Fixed Deposit (FD) | Mutual Fund | Public Provident Fund (PPF) |
|---|---|---|---|
| Safety | High (DICGC insured up to ₹5 lakh) | Moderate to High (depends on fund type) | Very High (government-backed) |
| Returns | Fixed, generally lower | Variable, potential for higher returns | Attractive, currently around 7-8% |
| Liquidity | Limited (premature withdrawal penalties) | High (redeemable anytime) | Low (15-year lock-in) |
| Investment Horizon | Short to Medium-term | Short to Long-term | Long-term (15 years) |
| Taxation | Interest taxed as per income slab | Capital gains tax applicable | Tax-free on maturity and interest |
| Minimum Investment | Varies by bank, often low | Varies by fund, can be as low as ₹500 | ₹500 per year, maximum ₹1.5 lakh |
PPF vs Mutual Fund vs FD – Which is Better For You?
Choose Fixed Deposits If:
If you are looking for an investment that can provide you a fixed return and if your investment horizon is short from anywhere between 1-15 months then going for a FD is the best option.
Even if you have some extra fund lying in your bank account that you may need in upcoming few months, then you can park that money in a FD to earn some extra return compared to what saving account usually pays.
Choose Mutual Funds If:
If you have a risk taking appetite and have a long term investment horizon 5 years or more then investing in mutual funds make sense.
Do note if you invest in mutual fund, you will encounter the volatility, hence you should need to be mentally prepared for that and if you stay invest for the long term then there are the higher chances that you will end up in profit while beating the inflation with a huge margin.
Choose Public Provident Fund If:
If you are not a tech savvy, or don’t wanted to take any unnecessary risk on your investment and with that if you have a long term investment horizon then going with PPF makes sense.
They are the most safest investment option available to a citizen, but do remember because it is the least risky option hence, the returns generated will also going to be low.
But the best part of investing in PPF is that the returns and the money you invest both are tax free or tax exempted.
Final Words – FD vs Mutual Fund vs PPF
That’s all, I hope after reading this in depth guide you must know which is the best investment option for you from a FD vs Mutual Fund vs PPF.
Do remember there is no good or bad investment option, it all boils down to your requirement and your risk taking appetite.
Thus, before investing you should analyse yourself properly so that you can enjoy the best returns out from your investment.
Disclaimer: The Honest American provides financial education, investing strategies, & stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.
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