PPF or equity mutual fund: what each is actually for

Two tools, not two competitors

PPF and an equity mutual fund get compared as if one must win. They sit at opposite ends of one trade-off: certainty against growth. PPF is a sovereign-backed deposit with a government-set rate; an equity fund owns shares and moves with them. The useful question is which part of your goal each should carry.

What PPF is

• Up to ₹1.5 lakh a year, minimum ₹500; a 15-year account, extendable in five-year blocks (see PPF after 15 years).
• The interest rate is notified by the government every quarter; it can fall as well as rise, so it is not fixed for 15 years.
• Exempt-exempt-exempt: a Section 80C deduction (old regime only), tax-free interest and a tax-free maturity.
• No market risk, and the money is deliberately hard to get out early.

What an equity fund is

• No cap on the amount and no lock-in (barring an ELSS fund's three years).
• Returns depend on markets: they have been strong over long stretches and negative over short ones.
• Long-term gains above ₹1.25 lakh a year are taxed at 12.5%.

Fifteen years, three outcomes for equity

₹1.5 lakh invested at the start of each year for 15 years is ₹22.5 lakh put in. PPF is run at an assumed 7%, chosen to keep the arithmetic simple, not the current rate. Equity is shown at three assumed returns because nobody knows which one will happen.

The tax column applies 12.5% to the gain above ₹1.25 lakh at the end (a simplification: in practice you could harvest the exemption yearly). Three readings follow. If equity returns 6%, PPF wins by about ₹5 lakh. If it returns 9%, equity wins by about ₹4.6 lakh. At 12% the lead is about ₹17 lakh. The spread of equity outcomes is wider than the gap to PPF, which is the whole point: PPF buys you a known answer.

How to split the job

• Goals under about five years: neither. Equity can fall inside that window and PPF is locked; use a debt fund or deposit.
• A goal 15 years out that must be met (a child's college, a retirement floor): PPF is the floor, equity is the growth on top. A common shape is a PPF base with a SIP alongside.
• Surplus money with no deadline: equity does the heavy lifting; PPF is the ballast.

Our PPF vs mutual fund calculator runs the same comparison with your own contribution and return assumptions, and asset allocation by age shows how the mix usually shifts over time.

This post is educational, not financial advice. PPF's rate is reset quarterly and the 7% used here is an assumption; equity returns are not guaranteed and past returns do not predict future ones. The 80C deduction applies only under the old tax regime.