Priyanka Personal Finance
Smart Money · Simple Words · India
Smart Money · Simple Words · India
A 7% FD isn't really 7% after tax. Pick your tax slab and compare what FD, equity mutual funds and PPF actually leave in your pocket — with risk, lock-in and 80C benefits side by side.
Educational use only · Not financial advice · Simplified tax model (FD taxed yearly at slab; equity LTCG 12.5% above ₹1.25L; PPF tax-free) · Mutual funds carry market risk
Most people compare the headline rate — 7% FD, 7.1% PPF, 12% mutual fund — but tax changes everything. FD interest is taxed every year at your slab rate, so for a 30% taxpayer a 7% FD is really only about 4.9% after tax. PPF is completely tax-free (EEE), so its 7.1% stays 7.1%. Equity mutual funds are taxed only on long-term gains at 12.5% above ₹1.25 lakh a year, keeping most of their higher return. That's why a high earner often finds PPF beats FD, and equity beats both over the long run.
It depends on your goal, risk appetite and tax slab. For high earners, FD interest is taxed at slab rate so its post-tax return is often the lowest. PPF is fully tax-free and safe but has a 15-year lock-in. Equity mutual funds have historically given the highest returns but carry market risk.
FD interest is added to your income and taxed at your slab rate every year, with TDS deducted by the bank. So a 7% FD gives only about 4.9% post-tax for someone in the 30% slab.
Long-term gains on equity mutual funds are taxed at 12.5% above a ₹1.25 lakh yearly exemption. PPF is EEE — the investment, interest and maturity are all completely tax-free.
For taxpayers in higher slabs, yes — because PPF returns are tax-free while FD interest is taxed every year. The trade-off is PPF's 15-year lock-in versus the flexibility of an FD.