PPF vs bank FDs vs debt funds: How much would ₹10 lakh have grown in one year?

With interest rates remaining elevated and debt mutual funds witnessing massive outflows, investors looking for relatively stable returns have a wide range of choices — from government-backed schemes and bank fixed deposits to debt mutual funds. But how much difference would these options have made to a ₹10 lakh investment over the past year?

The answer shows that while returns varied, the gap between most products was narrower than many investors may expect.

Government schemes

Among small savings schemes, the Public Provident Fund (PPF) currently offers 7.1% annual interest, while the National Savings Certificate (NSC) provides 7.7%. Senior citizens can earn 8.2% through the Senior Citizens' Savings Scheme (SCSS), matching the rate offered under the Sukanya Samriddhi Account.

A ₹10 lakh investment would have grown as follows:

Instrument    Rate    Value After One Year    Gain PPF    7.1%    ₹10.71 lakh    ₹71,000 NSC    7.7%    ₹10.77 lakh    ₹77,000 SCSS    8.2%    ₹10.82 lakh    ₹82,000

These schemes enjoy sovereign backing, making them attractive for conservative investors seeking predictable returns.

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Bank FDs

Several banks, especially small finance banks, are offering one-year fixed deposit rates comparable to government schemes.

According to available rates, Suryoday Small Finance Bank and Ujjivan Small Finance Bank offer 7.25% on one-year deposits, while Unity Small Finance Bank provides 7.5%. Equitas Small Finance Bank offers 7.1%, broadly matching the PPF rate.

Here's how ₹10 lakh would have performed:

Bank FD    One-Year Rate    Value After One Year    Gain

Equitas SFB    7.1%    ₹10.71 lakh    ₹71,000 Suryoday SFB    7.25%    ₹10.73 lakh    ₹72,500 Ujjivan SFB    7.25%    ₹10.73 lakh    ₹72,500 Unity SFB    7.5%    ₹10.75 lakh    ₹75,000

Large public-sector and private banks generally offer lower one-year rates, ranging from about 6.25% to 7%.

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Debt funds

Debt mutual funds have also generated returns broadly in the 7%-8% range over the past year, depending on the category and duration profile. Corporate bond funds, banking and PSU funds, and short-duration funds have delivered returns that are comparable to many fixed-income products.

Unlike FDs and small savings schemes, however, debt funds are market-linked and their returns are not guaranteed. They are influenced by factors such as interest-rate movements, bond yields and portfolio duration.

Despite delivering competitive returns, debt funds saw substantial outflows in May 2026.

According to AMFI data, income and debt-oriented mutual fund schemes witnessed net outflows of ₹96,948.53 crore during the month. Liquid funds accounted for the largest outflow of ₹29,680.94 crore, followed by overnight funds at ₹15,524.77 crore and corporate bond funds at ₹7,009.94 crore.

The return gap is surprisingly small

A comparison of various products reveals that the difference between a 7.1% return and an 8.2% return on a ₹10 lakh investment amounts to only about ₹11,000 over one year.

More than returns

For investors, the decision extends beyond headline yields. Factors such as safety, liquidity, taxation, lock-in periods and income requirements are equally important.

While PPF offers tax-free returns with a long lock-in period, bank FDs provide simplicity and predictable income. Debt funds, meanwhile, offer greater flexibility and the potential to benefit from changes in interest rates, though they carry market risk.

With returns across various fixed-income avenues clustered in a relatively narrow range, investors may find that choosing the right product depends less on chasing an extra percentage point and more on aligning investments with their financial goals and risk appetite.

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