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2 mins Read | 5 Years Ago

Which is Better Investment: PPF or Mutual Fund

Which is Better Investment: PPF or Mutual Fund?


Low risk, high returns, tax savings and portfolio liquidity are some of the most common things investors expect from their investment. Public Provident Fund (PPF) and Mutual Funds effectively fulfil these requirements. But is one better than the other? Read this post to find out.

The investment options in India are now as diverse as the nation is known to be. While the investment objective of every investor can be different, most people generally look out for options that have minimum risk and high returns potential. Tax savings and portfolio diversification are two other common expectations. While there are plenty of options that do fulfil these criteria, PPF and Mutual Funds are currently two of the most popular. Let us have a look at what is Mutual Fund and PPF and some crucial factors that can help you decide between the two:

1. Investment Risk

PPF is a savings scheme backed by the government. One of the biggest PPF Account benefits is that your investment will earn a fixed annual interest. The Central Government sets the PPF interest rate every year.

Mutual Funds are offered by Asset Management Companies (AMCs) that pool the investment from investors and invest the same into many different types of securities. While Mutual Funds are generally known to offer higher returns as compared to PPF, the returns are not fixed.

2. Returns Potential

The annual interest your PPF Account can earn is generally around 8%. The returns are fixed, and you are sure to earn the applicable interest every year without any risk.

Mutual Funds are of many different types and the returns vary as per the type of fund you select. There are liquid funds that generally offer returns in the range of 7% - 9% per annum and then there are equity funds that can provide 10% - 15% per annum or even more. However, there is no guarantee of return as the performance of the fund depends largely on the market conditions.

3. Investment Duration

A significant difference between PPF and Mutual Fund is investment duration. With PPF, the minimum investment duration is 15 years. You can also renew your PPF Account in sets of 5 years after maturity. Due to the long investment tenure, PPF is generally ideal for long-term savings.

Mutual Funds do not have any such fixed investment tenures. You can invest in them even for six months or until the time you want to remain invested. This flexibility with regards to the tenure makes Mutual Funds ideal for different types of investment objectives.

4. Tax Savings

PPF investment is tax-free up to a limit of Rs 1.5 lakh in a year. Even the returns generated from PPF are tax-exempt under Section 80C of the Income Tax (IT) Act.

There are tax saving Mutual Funds known as Equity-Linked Savings Scheme (ELSS) which offer tax exemption of up to Rs 1.5 lakh in a year under Section 80C. Apart from ELSS, all the other types of Mutual Funds are taxed based on the type of fund and investment tenure.

5. Portfolio Diversification

When you invest in PPF, your money would be mostly invested in instruments that offer fixed returns.

One of the biggest benefits of Mutual Funds is portfolio diversification as there are many different types of funds that invest your money in many different types of securities. This allows you to select a particular type of fund that best suits your portfolio and investment objective.

Making the Decision

As can be seen, PPF and Mutual Funds both have their benefits. The decision between PPF versus Mutual Fund depends on what an investor is looking for.

If you are looking for a safe investment with fixed returns and tax benefits, PPF is the way to go. But if you do not mind carrying investment risk for higher returns and have long-term objectives, you can browse through the different types of Mutual Funds available.



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