PPF vs Mutual Fund: Which One is For You?

byDilip PrasadLast Updated: March 13, 2025
Key Takeaways:
  • PPF is a government-backed, long-term savings scheme offering safe, guaranteed returns.
  • Mutual Funds (MFs) pool money from investors to invest in various assets like stocks and bonds and are managed by Asset Management Companies (AMCs).
  • PPF has fixed returns, currently at 7.1%; MF’s returns are market-linked, offering potential for higher gains but also greater risks.
  • PPF offers the advantage of secure savings, low risk, guaranteed returns, and tax savings.
  • MF offers advantage of diversified investment, potential for higher returns, flexible options, easy liquidity, and tax benefits.
PPF vs mutual funds

With the growing awareness about investing and finance, investors in India now have wider options to choose from in order to meet their financial goals. Whether the purpose is to achieve high returns, maintain liquidity or enjoy tax benefits with minimum risk, investors often opt to choose between two popular investment options: Public Provident Fund (PPF) and Mutual Funds (MFs)

Although both are valuable in financial growth, they serve different functions. While Mutual Funds (MFs) are professionally managed investment pools that spread your money across various assets like stocks, bonds, gold, etc, Public Provident Fund (PPF) is a government-backed savings scheme that focuses on long-term financial security. 

Through this comprehensive blog, we will explore the meanings of PPF and Mutual Fund and also understand the crucial differences between the two to choose the investment option that suits your financial needs the best. 

One App for All Payments!

Fast, secure, and hassle-free transactions—install now!

What is PPF?

The full form of PPF is Public Provident Fund. A Public Provident Fund (PPF) is a long-term savings scheme popular among individuals seeking stable, risk-free returns. Since it is backed by the government, it ensures the safety of your money and offers guaranteed returns.

In a PPF account, you deposit money regularly, and the interest is compounded. It’s ideal for low-risk investors and isn’t affected by market fluctuations, contributing to the diversification of your financial portfolio. 

What is a Mutual Fund?

A Mutual Fund (MF) is an investment vehicle that pools money from multiple investors and invests it in stocks, bonds, or other securities. It provides investors access to a professionally managed portfolio, helps diversify risk, and can reduce costs through shared resources. The total collection of these investments is called the mutual fund’s portfolio. When you invest in a mutual fund, you buy units of the fund. Each unit represents your share of ownership in the fund and entitles you to a portion of any returns it generates, such as dividends, interest, or capital gains, thereby contributing to your financial growth.

Which is Better?: PPF vs Mutual Fund

Consider the following example to understand the returns of investing in PPF and Mutual Funds over one year:

Let’s compare an investment of ₹1.5 lakh in PPF and Mutual Funds over one year.

Smart PPF Planning Starts Here!

Know how much you’ll save with our easy calculator.

PPF (Public Provident Fund) – 7.1% Interest Rate for FY 2024-25

  • Interest Rate: 7.1% per annum (compounded annually)
  • Investment: ₹1,50,000
  • Return after 1 Year: ₹1,50,000 × 7.1% = ₹10,650
  • Total Value after 1 Year: ₹1,50,000 + ₹10,650 = ₹1,60,650

Mutual Funds (Assumed 12% Annual Return)

  • Annual Return (Assumption): 12% (Market-linked, not guaranteed)
  • Investment: ₹1,50,000
  • Return after 1 Year: ₹1,50,000 × 12% = ₹18,000
  • Total Value after 1 Year: ₹1,50,000 + ₹18,000 = ₹1,68,000

Mutual funds have the potential for higher returns (₹18,000 vs. ₹10,650 in this example) but come with market risk and fluctuations. PPF provides a stable and government-backed return, making it a safer option, but with lower returns compared to equity mutual funds. Your choice should depend on your risk tolerance and investment goals.

Turn Your Money into Gold!

Buy, sell & store gold digitally with ease. Get started!
Invest Now

Your Gold, Your Control!

Disclaimer: Nothing on this blog constitutes investment advice, performance data or any recommendation that any security, portfolio of securities, investment product, transaction or investment strategy is suitable for any specific person. You should not use this blog to make financial decisions. We highly recommend you seek professional advice from someone who is authorised to provide investment advice.

FAQs

What is the minimum age to invest in PPF?

There is no minimum age to open a PPF account; both adults and children can open one. However, for children under 18, the account must be managed by a guardian until they reach 18.

What are the limitations of PPF?

PPF has several limitations including a 15-year lock-in period, low interest rates (currently 7.1%), and limited liquidity with withdrawals only allowed after five years. It has a ₹1.5 lakh annual investment limit, and offers limited flexibility. Premature closure is allowed after five years but with a penalty.

What are the limitations of mutual funds?

Limitations of mutual funds include the lack of control over day-to-day fund management, along with fees like the expense ratio and exit load. Returns are not guaranteed, as the values fluctuate with market movements. There's also the risk of fund manager underperformance or mismanagement.

What is the minimum investment required for Mutual Funds and PPF?

Mutual Funds can be started with ₹100, with no upper limit. Regular investments are optional but beneficial for long-term growth. PPF requires a minimum of ₹100, with at least ₹500 annually to keep the account active, and a maximum of ₹1,50,000 per year.
something

You May Also Like

How to Choose the Best PPF Scheme?Last Updated: August 17, 2022

Services, tech support, the ease of opening a PPF account, and other factors should always be considered when…