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Mutual Fund SIP vs PPF: Comparison, Returns, and Which is Better

SIP vs PPF- An Overview

If you are aiming to fulfil long-term financial objectives, SIP and PPF are two of the best investment options. But what should you select between the two? Read this post to find out.

Every individual has a host of long-term financial goal. It can be a financially stable retirement for some, while others might want to ensure that they have adequate funds to afford the higher education and marriage of their kids. Fortunately, there are now different investment options for such long-term objectives. For instance, mutual fund SIPs and PPF can be excellent choices for long-term investments. Both are very different products and have their advantages.

But how will you select the best for your investment between the two? Take a look at the points discussed below to choose between

What are SIP and PPF?

To start with, let us try to get a basic understanding of what SIP and PPF are.

What is Systematic Investment Plan (SIP)

SIP or Systematic Investment Plan is a method of investing smaller amounts in the mutual fund scheme of your choice at regular intervals. There are different types of mutual funds, like equity, debt, hybrid, ELss, and more. You can select a fund of your choice and start a SIP for any duration of your choice.

What is Public Provident Fund (PPF)

Public Provident Fund or PPF is a government-backed savings scheme. Unlike mutual funds where returns depend on the market conditions, PPF offers a fixed rate of returns, which is decided by the government every quarter. You have the option to invest a lump sum amount or make monthly deposits.

SIP vs PPF: Minimum and Maximum Investment Amount

SIP: Minimum and Maximum Investment Amount

With SIPs, you are free to set your investment amount. With most mutual fund schemes, the minimum SIP amount is Rs. 500/month. Apart from monthly SIPs, you can also consider quarterly, biannually, and annual SIPs. With regards to the maximum investment amount, there is no limit. You are free to invest as much as you like.

PPF: Minimum and Maximum Investment Amount

With PPFs too, you can set your investment amount. The minimum investment amount is Rs. 500. However, maximum investment in PPF is capped at Rs. 1.5 lakhs in a year.

SIP vs PPF: Investment Tenure

There are no limitations on the duration for which you’d like to invest in SIPs. But do note that some mutual funds like ELSS have a lock-in period. You will have to remain invested for the entire lock-in period to take advantage of the tax benefits. With PPF, the minimum investment tenure is 15 years. On completion of 15 years, you have the option to either withdraw your investment and returns or re-invest the same for a minimum of five years more.

SIP vs PPF: Returns

Returns in SIP

If you are going with SIP in mutual funds , the returns would depend on the type of scheme you select. For instance, equity mutual funds can deliver as much as 12%-15% and even higher, depending on the market conditions. Debt funds, on the other hand, can provide returns in the range of 7%-9%. The returns depend on market conditions.

Returns in PPF

One of the biggest reasons why investors prefer PPF is the guaranteed returns it offers. As the government backs this investment scheme, PPF is considered one of the safest investment options. However, the government mostly adjusts the PPF returns every quarter. From 1st January 2020, the PPF interest rate is set at 7.90%.

Taxation of SIP and PPF

To understand which is better, PPF or SIP, you should also consider taxation. With SIPs, the tax varies based on the type of mutual fund you select and the duration for which you remain invested. ELSS funds deserve special mention as these are the only type of mutual funds that are eligible for a tax deduction of up to Rs. 1.5 lakhs in a year under Section 80C of the IT Act.

PPF is one of the most tax-efficient investment options as it is not only eligible for tax deductions of up to Rs. 1.5 lakhs in a financial year under Section 80C, but even the returns that you receive from PPF are tax exempt.

SIP PPF
Investment Options Many different types of mutual fund schemes to choose from No options as such
Min. And Max. Investment Amount Minimum amount is Rs. 500/month. No maximum limit. Minimum amount is Rs. 500 and maximum investment can be up to Rs. 1.5 lakhs in a year
Investment Tenure The investor is free to remain invested as long as he/she wants Minimum investment tenure of 15 years. In blocks of 5 years after the initial tenure.
Risk Level Depends on the type of mutual fund scheme you select Minimum
Returns Potential Depends on the type of mutual fund scheme you select. Fixed by the government. But, it is generally in the range of 7.5%-8.5%.
Taxation Taxation varies for equity and debt funds. ELSS funds come with additional tax benefit under Section 80C. Eligible for a tax deduction of up to Rs. 1.5 lakhs under Section 80C. Returns are tax exempt.
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SIP or PPF: What Should You Select?

SIP or PPF- which is better? As can be seen above, both SIP and PPF have their advantages. The decision between the two ultimately depends on your personal preference and investment objective.

If you are a risk-averse investor, PPF can be an excellent choice. But if you are aiming for higher returns and do not mind the risk, SIP can be the way to go for achieving your long-term financial goals. But do consult an investment advisor before deciding so that you can select one that perfectly suits your goals, risk appetite, and investment horizon.