PPF vs Mutual fund- What is the Right Choice?

PPF vs mutual funds

PPF vs Mutual fund- where to invest in is often a question asked by the investors. Both of them share different sets of advantages, disadvantages, features, maturity period, tax benefits, etc. The popularity and importance of PPF and Mutual funds become the reason why one should know the complete difference between both of them before investing.

In this blog, we will understand the difference between PPF vs mutual funds, the benefits and where to invest in.

What is PPF or Public Provident Fund?

PPF or Public Provident Fund is a scheme specially made for individuals to help them save a part of their income annually, in order to build post-retirement savings or retirement corpus. The amount deposited into the PPF scheme makes an individual eligible to receive interest on the principal amount with tax-saving benefits. PPF was introduced to encourage those individuals who don’t fall under the Employee Provident Fund Organization (EPFO) to save and build a retirement corpus. A tax benefit of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act can be availed through the PPF scheme.

What are the benefits of a PPF account?

Following are the benefits an individual can avail from a PPF account

  • The interest on PPF balance is compounded on a yearly basis
  • PPF account offers a tax deduction of up to Rs. 1.5 lakh
  • PPF lock-in period is 15 years, which makes it a good option to save a good amount of money for a longer period of time
  • Loans can be availed from the PPF account
  • The minimum amount to deposit in a PPF account is Rs. 500 only
  • PPF tenure can be extended in the block of 5 years
  • Partial withdrawal is allowed after the completion of the 6th financial year

Who can open a PPF account?

Listed below are the people who are eligible to open a PPF account

  • Only Indian citizens are eligible to open a PPF account
  • An Indian citizen settled abroad can continue operating his/her PPF account
  • Parents/guardians on behalf of their minor children can open a PPF account

What are Mutual funds?

Mutual funds are one of the forms of investment instrument when an asset management company or fund house pools out investment from individual investors and institutional investors. The fund manager buys securities like bonds and stocks from the market that is in line with the investment mandate. Mutual funds are excellent options to diversify investment portfolios.

What are the benefits of a mutual fund?

Given below are a number of reasons a person should or try investing in a mutual fund-

  • The mutual fund investments are managed by experts. All the investments are managed by fund managers which are pooled by the asset management companies and fund houses
  • There is no lock-in period. There are mutual funds that are open-funded and often come with varying exit loads on the exemption
  • Mutual funds come at a low cost, which makes them a convenient and suitable option for small investors
  • Investment can be made via SIP (Systematic Investment Planning). SIP frequency can be monthly, quarterly and bi-annually
  • Mutual funds offer fund plans that make it easy for investors to meet their short and long term goals
  • Switching funds is easy. An investor can move his/her investment to a different fund of the same fund house
  • The investment made into mutual funds are invested into different assets and shares of several companies
  • Mutual funds offer dual benefits, which are SIP and no lock-in period, these benefits together makes it a lucrative investment tool
  • Mutual funds offer liquidity
  • Mutual funds houses and mutual fund plan works under the purview of the Securities and Exchange Board of India (SEBI) and Reserve Bank of India (RBI)
  • Buying and selling of the fund units are made at the prevailing net asset value of the mutual fund plan
  • An investor can track his/her mutual fund investment

Who can invest in Mutual funds?

Following are the list of people who can invest in mutual funds-

  • Anyone who would want to achieve a short or long term financial goal
  • If one is looking forward to earn higher returns as compared to a regular savings bank account
  • Anyone who wishes to diversify his/her investment portfolio

What is the difference between Mutual funds and PPF or Public Provident Fund?

PPF and Mutual funds have their sets of advantages and disadvantages and features that can offer multiple benefits to the users. Hence, it is good to have a look at the difference between both of them before randomly choosing one-

ParametersMutual FundsPPF
Investment run byFund houses or Asset management companiesBy Government of India
RequirementsTo meet short or long terms goalsTo build a retirement corpus
Return on investmentsReturn is based on the performance of the underlying assetsReturns are computed on an annual basis
Tax benefitsDepends upon the kind of mutual fund investment and the period of itInvestment in PPF is tax-free up to a limit of Rs 1.5 lakh under Section 80C of the Income Tax Act
Maturity PeriodNo fixed tenure15 years, can be extended in the blocks of 5 years
LiquidityA high degree of liquidityLow degree of liquidity
Risk/safetyRiskier than PPFsPPF is a risk-free investment
Lock-in periodNo concrete lock-in period15 years
DiversificationYesFixed
Premature withdrawalCertain mutual funds have a lock-in period, in such cases, SIP payments can be stopped but the withdrawal is not allowed before the maturityPartial withdrawal is allowed only after the completion of 6 financial years

Conclusion

PPF vs Mutual funds both are quite debatable due to their disadvantages, advantages, features, tax benefits, maturity period, etc. Before choosing one out of the two, it is important to understand what they offer to the investor along with the time period to keep the amount invested till maturity. Apart from that, it is also crucial to figure out if there is a partial withdrawal facility available with the investment scheme or not. Once considering all the factors, it is wise to understand the personal requirements, financial goals and more before choosing the one. Help from experts can make the decision a little easier.

FAQs
Can a salaried professional invest in mutual funds?
Any individual who would like to invest in the market or would want to gain short and long term financial goals can invest in mutual funds.
What should I choose- PPF, EPF or mutual funds?
PPF, EPF, and mutual funds, all three offer different features, advantages, disadvantages, tax benefits, maturity periods, etc. Hence, it is good to consider all these factors along with considering personal financial goals, before choosing the one.
What is the current interest rate on mutual funds?
Different fund houses offer different interest rates on mutual funds.
What is the lock-in period of EPF, PPF and mutual funds?
The lock-in period of EPF remains till retirement or resigning from the job, PPF lock-in period is 15 years, whereas the lock-in period of mutual funds is not concrete.

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