SIP vs PPF
PPF gives you a government-backed, tax-free return around 7.1% with a 15-year lock-in. An equity SIP gives you an uncertain return that has historically been much higher, with no guarantee at all. Both belong in most portfolios — the useful question is which money goes where.
The same money, both ways
₹1.5 lakh a year — the PPF annual ceiling — which is ₹12,500 a month as a SIP:
| Term | Invested | PPF (guaranteed) | SIP (projected) | Difference |
|---|---|---|---|---|
| 10 years | ₹15 L | ₹22,30,124 | ₹29,04,238 | ₹6.74 L |
| 15 years | ₹22.5 L | ₹40,68,209 | ₹63,07,200 | ₹22.39 L |
| 20 years | ₹30 L | ₹66,58,288 | ₹1,24,89,349 | ₹58.31 L |
Over fifteen years the projected gap is around ₹22.39 L. That is the price of certainty, and it is worth seeing plainly before deciding certainty is free.
But the columns are not the same kind of number. PPF's figure is a contractual outcome, subject only to the government revising the rate. The SIP's is a projection that could be materially higher or lower, including lower than the amount you paid in.
What actually differs
| PPF | Equity SIP | |
|---|---|---|
| Return | Notified, currently around 7.1%, revised quarterly | Uncertain; commonly modelled at 10–12% |
| Guarantee | Sovereign-backed | None; capital can fall |
| Annual limit | ₹1,50,000 | None |
| Lock-in | 15 years, partial withdrawal from year 7 | None (ELSS: 3 years per instalment) |
| Tax going in | 80C deduction, old regime only | None, unless ELSS in the old regime |
| Tax on growth | None | None while held |
| Tax at exit | None | 12.5% on long-term gains above ₹1.25 lakh a year |
| Real return at 6% inflation | About 1.04% | About 5.66% if 12% is achieved |
The last row is the one to sit with. PPF's real return is positive but thin. It preserves purchasing power with a small margin; it does not build wealth quickly.
PPF’s real advantage is the tax status, not the rate
7.1% does not sound impressive next to a 12% equity assumption. But PPF is exempt-exempt-exempt: deductible going in under the old regime, tax-free while it grows, tax-free at maturity.
Compare with a fixed deposit at the same headline rate, where interest is taxed at your slab every year on accrual. At 30%, a 7.1% FD is 4.97% post-tax — so PPF's 7.1% tax-free is equivalent to roughly 10.14% pre-tax in a taxable instrument.
Framed that way, PPF is an excellent debt allocation, comfortably better than a deposit for anyone in a higher slab. It is a poor equity substitute, which is a different claim.
Which money goes where
Not a competition — an allocation
PPF is a good home for the debt portion of a long-term portfolio, and for anyone who genuinely cannot tolerate seeing a balance fall. The 15-year lock-in is a feature for money you would otherwise be tempted to spend.
An equity SIP is for the growth portion, over horizons of seven years or more, where volatility has time to resolve.
A common arrangement: fill PPF for the tax-free debt allocation and the 80C deduction if you are on the old regime, and put everything beyond that into equity SIPs. Very few people should choose only one.
Questions people actually ask
Is PPF better than a SIP?
Neither dominates. PPF is better for certainty and tax treatment; an equity SIP has a much higher expected return over long horizons, with no guarantee.
For a fifteen-year goal you cannot afford to miss, PPF's certainty is genuinely valuable. For retirement thirty years out, giving up the equity premium is expensive — see the gap in the table above.
Can I do both with ₹1.5 lakh a year?
Yes, and most people should. Split it — say ₹50,000 to PPF for the guaranteed base and ₹1 lakh into equity SIPs — rather than treating it as an either-or.
If you are on the old regime and using 80C, remember EPF contributions may already fill much of the ₹1.5 lakh cap before you add anything.
What happens to PPF after 15 years?
You can withdraw the full balance tax-free, or extend in five-year blocks with or without further contributions. Extended without contributions, the balance keeps earning interest and withdrawals become more flexible.
That extension option makes PPF more useful as a retirement asset than the 15-year headline suggests.
Is the PPF rate fixed for 15 years?
No, and this is widely misunderstood. The government revises small-savings rates quarterly, and your balance earns whatever the prevailing rate is — not the rate when you opened the account.
So a 15-year PPF projection at today's rate is an estimate too, just a far narrower one than an equity projection. Check the current rate at the National Savings Institute.
Where these numbers come from
- National Savings Institute — notified PPF and small-savings rates
- Income Tax Department — capital gains and interest taxation
- AMFI — mutual fund industry data and investor education