PPF vs Mutual Funds – Which one should you choose?

PPF vs Mutual Fund – Wondering where to invest?

Both PPF and Mutual Funds are aimed towards saving for the long term. Both have a set of advantages, disadvantages, features, and other benefits. Settling for one depends on your preferences and goals. 

In this article, we will be understanding the comparison of mutual fund vs PPF in detail.

Introduction

We live in an earning world – A world where everyone is looking for a stable income to spend our days with leisure and comfort. 

And through this journey of finding an income to support ourselves, we may stumble across an extra amount of money in our hands. 

We can choose to either spend this money or save it for the future. And since all of us will become incapable to work one day and retire, it is clear to all of us that saving our surplus money is the better option in the long run.

Now, this begs the question, what is the best way to save our money. The answer may vary. A majority of people will insist that the best way to save money is in banks. But, financially wise will tell you that this choice may not be as smart as it seems. This is because banks add 3.5% interest on your money each year, while the average inflation rate of our country is approximately 5.5% in a year. This simply means that keeping your money in the bank will cause it to lose 2% of its value each year.

A few brave citizens will give another option of investing and trading in the stock market. While this option boasts of high rewards, it does come with its fair share of risks. If you do not have the proper knowledge and foresight about the functioning of the stock market, you can wind up losing a large chunk of your savings here.

So which option is safe and profitable? Here we get introduced to Mutual Funds and PPF, along with kicking off our discussion regarding which of the two is to be chosen, and why.

What are Mutual Funds?

Mutual Funds are investment instruments for the general public. They are usually offered by a management company or a fund house pool. Mutual Funds are also preferred by investors that have an appetite for high risk.

The way they work is that the investing body looks at various companies for investment and check out each of their factors. 

After assessing their factors, they create portfolios picking specific companies to create a diversified and all-around investment agenda. 

Then the money collected from customers is invested into all of the selected companies collectively.

Features of Mutual Funds

Let us now look at some features of mutual funds.

  • Mutual funds invest money into a variety of stocks. This variation decreases the total risk factor involved with investing. It is so because the chosen stocks are such that the downfall of one stock will either not affect the others at all, or might even result in another stock going up.
  • Mutual funds are a good investment option for small investors. This is because the seed money needed to begin investing in mutual funds is very low.
  • All of the investments made in mutual funds are overlooked by experts. All asset management companies or fund houses employ experts to make all the major investing decisions.
  • A great advantage of mutual funds is the absence of a lock-in period. A lock-in period is the minimum time for which your money must be invested before it can be taken out. The absence of a lock-in period means you are free to take out your money anytime you want to do so.
  • Mutual funds also allow investments through SIP (Systematic Investment Planning), which are regular intervals at which you can invest into mutual funds. The frequency of SIP can be monthly, quarterly, or semi-annual.
  • Switching mutual funds is very easy. You are usually free to switch between different funds of the same fund house.
  • Mutual funds come with a plethora of plans for investors to choose from depending upon the time period of their goals (Short term or Long term).
  • Mutual funds are very easy to track and monitor.

What is PPF?

Public Provident Fund or PPF, is a tax saving scheme for individuals that help them save some part of their annual income to provide post-retirement benefits.

The deposits made to the PPF scheme by individuals make them eligible to receive interest on their investments with tax-saving benefits.

PPF investments are the best solution for individuals who don’t have a high-risk appetite. It was introduced to encourage the individuals who don’t fall under the Employee Provident Fund Organization.

Features of PPF

Let us now look at some features of PPF:

  • The PPF account has a tax dedication of up to ₹1.5 Lakhs.
  • The interest of PPF balance is compounded on a yearly basis
  • The PPF lock-in period is 15 years
  • The lock-in period of PPF makes it a great option to save a good amount of money for a longer period of time.
  • Depositing in a PPF account starts at ₹500
  • After the completion of the 6th financial year, partial withdrawal is allowed

Should you invest in PPF or Mutual Funds?

Between PPF vs Mutual Funds, both these tools have different sets of unique features. Having both accounts is never a bad idea since it could practically be very beneficial for your portfolio. 

How much you could invest depends on the appetite of your risk as an investor. As for the tax benefits, they could be available in both these types of investment tools.

As we mentioned, if your financial position allows you to bear more risk than usual, you can definitely get started with mutual funds. If you want to choose a long-term beneficial route, you can also go for long-term SIPs.

However, if you want to remain on a safer side and have a safer play with your investments, investing in PPF is a viable option.

Conclusion

Between PPF vs Mutual Funds, both could be chosen depending on your requirement and risk-bearing appetite. 

As both these types of investment tools share their fair share of advantages, disadvantages, features, tax benefits, etc, it’s important to understand where you are investing your money before you make a decision to choose one.

Once you have understood both these types of investment tools, you can match them against your requirement, financial goals, and what you want to achieve with either of these investment types. 

In case you want to get started with either of these investment types, you can connect with us at MoneyIsle and easily get started with investing.

FAQs

Which one is better between PPF vs Mutual Funds?

Between PPF vs Mutual Funds, both these tools have different sets of unique features. Having both accounts is never a bad idea since it could practically be very beneficial for your portfolio. How much you could invest depends on the appetite of your risk as an investor. As for the tax benefits, they could be available in both these types of investment tools.

Are mutual funds better than PPF?

While mutual funds have more risks over PPF, they still could be potentially beneficial depending on how the markets are performing. In fact over the span of 15 years, mutual fund SIPs can bring about 1.5 times more returns than PPF.

What is better – ppf vs mutual fund quora?

PPF is a great choice to have a steady long-term financial goal. However, mutual funds, in the long run, could have better returns than PPF, making them a more beneficial option.

Should I just save my money in banks?

A majority of people will insist that the best way to save money is in banks. But, this choice may not be as smart as it seems. This is because banks add 3.5% interest on your money each year, while the average inflation rate of our country is approximately 5.5% in a year. This simply means that keeping your money in the bank will cause it to lose 2% of its value each year.

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