PPF vs Mutual Fund – Investors often wonder if they should invest in a PPF or a mutual fund. Both PPF and SIP are good options for achieving long-term financial goals. However, each of these investments has different characteristics in terms of the risk it entails, the returns it gives, the liquidity it provides, the time for which the investment must be made, and a variety of other criteria.
Definition – PPF Vs Mutual Funds
We must first understand what are SIP and PPF. Because of the popularity and significance of both, it is essential to understand the differences between PPF and mutual funds. In this article, we will explain PPF vs mutual funds, as well as the advantages and disadvantages of each.
PPF (Public Provident Fund):-
PPF or Public Provident Fund is a scheme specially made for individuals to help them save a part of their income, to build post-retirement savings or retirement corpus. The amount deposited into the PPF scheme makes an individual eligible to receive interest on the amount with tax-saving benefits.
Process of investment– If you fulfil the PPF eligibility criteria, you can open a PPF account with any bank or post office using an online portal or by visiting a branch. You can make 12 transactions in PPF Account in a year. Amount can be invested via third-party bank transfer or cash deposit, whichever is more convenient for you.
Know best bank for opening PPF account
Mutual Fund:-
Mutual funds are a type of investment in which an asset management firm or a fund house combines money from both individual and institutional investors. The fund manager purchases securities such as bonds and stocks on the open market to meet the investing mandate. Mutual funds are a great way to diversify one’s investing portfolio.
Process of investment– Instead of making a lump-sum commitment, Mutual Funds offer a Systematic Investment Plan (SIP). It allows investors to invest a specified amount in a Mutual Fund scheme at regular intervals, such as once a month or once a quarter.
Difference Between PPF & Mutual Fund (PPF vs SIP)
When it comes to choosing an investment plan, few major factors are inevitable to know. To ensure that we are investing in a safer place (which stimulates long term returns), we need to be clear of the below-mentioned queries-
What is the Maturity Term for PPF and Mutual Fund?
PPF: A PPF account must be held for a minimum of 15 years. Upon maturity, you can prolong your investment in 5-year increments.
Mutual Funds: A mutual fund’s maximum duration is undefined. You have as much time as you want to invest. You can stay for a minimum of three years.
What is the minimum and maximum investment in PPF and Mutual Fund?
PPF: – You can also set your investment amount using PPFs. The minimal amount to invest is Rs. 500. However, the maximum amount that can be invested in a PPF in a single year is Rs. 1.5 lakhs.
Mutual Fund: – With SIPs, you have complete control over the amount you invest. The minimum monthly SIP contribution for most mutual fund programmes is Rs. 500. Aside from monthly SIPs, quarterly, biannually, and annual SIPs are other options. There is no limit on amount that can be invested. You have the privilege o invest as much as you want.
Which gives high return- PPF or Mutual Fund?
PPF:- The government sets and guarantees the returns on PPF. Every quarter, the exact rate is determined. In the past, rates have fluctuated approximately 8% per year.
Mutual Fund:- Mutual fund returns, on the other hand, are market-linked. It varies depending on market circumstances and the fund manager’s performance.
Where Can I get More Liquidity – PPF or Mutual Fund?
PPF:- PPF deposits have a 15-year lock-in period and allow for partial withdrawals after the sixth year of an active account, but only up to 50% of the initial investment.
Mutual Fund:- Your open-ended mutual fund investment, on the other hand, can be redeemed on any business day. There are, however, certain ‘closed-ended funds’ with a three- to four-year term. You will not be able to withdraw your money from these funds before the end of the period.
Keep In Mind: If you redeem your mutual fund investment too soon, usually within one year of investing, you may be charged an exit load.
Can I get a loan from a mutual fund, such as a PPF account?
PPF: – After 5 years of investment, you are eligible to take out a loan against your PPF account at a rate of 1% per year.
Mutual Fund: – To satisfy any short-term demands, you can also obtain a loan against your mutual fund assets. Loans against mutual funds, on the other hand, can be more expensive due to the higher interest rate and processing fee.
Is PPF and mutual fund investments tax-free?
PPF: Under Section 80C, you can invest up to Rs 1.5 lakh in a PPF account and get a tax deduction of up to Rs 1.5 lakh per year. PPF interest is tax-free, although it must be reported on the annual income tax return. The amount invested in a PPF at maturity is also tax-free. To put it another way, PPF is taxed ‘exempt, exempt, exempt.’
Mutual Fund:- fund returns are taxed differently depending on the type of mutual fund scheme and the length of time invested. Under Section 80C, you can earn a tax deduction of up to Rs 1.5 lakh per year if you invest in a certain category of mutual funds known as ELSS funds. However, this does not apply to other types of mutual funds.
Which is safe to invest- PPF or Mutual Fund?
PPF:- The Public Provident Fund (PPF) is a government-backed savings vehicle. The money put in PPF is used by the government, and the government also pays interest on it. As a result, there is virtually little risk of default.
Mutual Fund: – Mutual fund money, on the other hand, is vulnerable to market risks. Due to changes in the prices of the companies held by the fund, the value of equity funds swings virtually every day. The value of debt funds fluctuates, due to variations in bond prices.
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Think Wise, Choose Right
While it is impossible to compare a market-linked product to a fixed-income product, PPF is advised for those who are completely risk-averse. Mutual funds are a good option for investors who are willing to assume a moderate risk in exchange for a better return. The moderate risk can be further reduced by investing in mutual funds over a lengthy period of time using a systematic investment plan (SIP).
Before deciding between the two, it’s crucial to grasp what each one has to offer, as well as the time period required to keep the money invested till maturity. Apart from that, it’s also critical to determine whether or not the investment scheme allows for partial withdrawals. After examining all of the aspects, it’s a good idea to figure out your own needs, financial goals, and other concerns before settling on one. Expert assistance may make the decision a little easier.
An investment in an open end scheme can be redeemed at any time. Unless, it is an investment in an Equity Linked Savings Scheme (ELSS), wherein there is a lock-in of 3 years from date of investment, there are no restrictions on investment redemption.