Life
General
Claims
Resources
Simplifying Life Insurance in India
Difference Between PPF vs Mutual Funds
When achieving financial objectives, investors can make various suitable choices based on the risk profile, return requirements, and timeframe for cash conversion. Out of the multiple options, PPF and mutual funds are quite popular but vary from one another.
PPF is a government-sponsored plan that assures principal and interest rates, is tax-free, and is the least risky. Mutual funds are diverse and help investors interested in market-related securities and products. Read on to gain more insights about the difference between PPF vs mutual funds.
Table of Contents
What is the Public Provident Fund (PPF)?
The Public Provident Fund (PPF) is an official savings and investment scheme launched by the Government of India to bring a savings culture among the people. This scheme was started under the provision of the PPF Act of 1968 and is a long-term plan that is considered safe, gives assured returns, and is tax-saving.
The PPF account has a tenure of 15 years. However, it can occasionally be renewed in lock steps of 5 years. Contributors can contribute at least ₹ 500 and a maximum of ₹ 1.5 lakh per year; contributions can be made in one go or in part.
The PPF account also allows for partial encashment from the seventh year and is also available for loans on the balance from the third year, which makes the product relatively more liquid. While this scheme may not be ideal for high-risk takers, it is perfect for those who want fixed returns and are unwilling to take the stock market risk.
What are Mutual Funds?
Mutual funds pool funds from many investors to invest in a diversified portfolio of stocks, bonds, or other securities. It allows people to invest their money in various assets. Professional fund managers manage these assets.
They have market risks, and their net value changes due to the value of underlying securities. It offers benefits like diversification, professional management, and liquidity. They are ideal for those investors who seek growth potential.
People willing to accept some degree of risk can choose this. Mutual fund houses make investments across categories, including equities, debt, and bonds. Therefore, it provides the scope for higher returns, but the risk is also higher as it is market-linked.
Key Differences Between PPF and Mutual Funds
Knowing the difference between the PPF and mutual funds enables one to opt for the best option, which gives a higher return on investment. To make you clear in your decision, here is a table representing the differences of each fund:
Comparing PPF vs Mutual Fund Returns
While comparing the returns of PPF and mutual funds, one must consider aspects such as the nature of investments, factors that affect investment, and the results of the preceding years. Here's an in-depth look:
Mutual Funds or PPF - Which is Better?
Your choice between a PPF and a Mutual Fund would depend on your investment goals and risk tolerance. PPFs offer safety and tax benefits, but Mutual Funds provide higher returns with greater flexibility and liquidity.
1. Risk & Return Profile
PPF offers a fixed, tax-free return with minimal risk, which is great for the conservative investor looking for stable growth. Mutual funds are market-linked, so potential return and exposure to the market are higher.
2. Liquidity
The lock-in period in PPF is 15 years, so it constricts accessing funds because one cannot avail of early redemption. Compared with this earlier option, mutual funds offer greater liquidity. They allow redemption anytime, depending upon the fund.
3. Investment Horizon
PPF is suitable for long-term plans with retirement in focus, managing stability, and guaranteed returns. Mutual funds are apt for short-term and long-term goals, with options for all investment horizons and risk profiles.
4. Diversification
Mutual funds invest in a vast diversification basis of different asset classes. Therefore, the risks at an individual level should be reduced. However, it is confined to the government-backed bonds within the PPF.
Investing in PPF or mutual funds depends on the goals, risk appetite, and duration of an investor's investment. Being a fully guaranteed instrument with tax saving benefits, PPF is suitable for the investor who prefers minimum risk through long-term investment.
Mutual funds, especially equity-based mutual funds schemes, give returns at the market link with high growth prospects. In the long run, the effective combination of both types of investments can lead to stability and development.
Disclaimer: The information provided on this website is for general informational purposes only and should not be construed as financial, investment, or legal advice. While we strive to provide accurate and up-to-date content, we do not guarantee the completeness, reliability, or suitability of the information for your specific needs.
We do not promote or endorse any financial product or service mentioned in these articles. Readers are advised to conduct their own research, consult with financial experts, and make informed decisions based on their unique financial circumstances. Any reliance you place on the information provided here is strictly at your own risk.
FAQs about PPF vs Mutual Fund
Which offers better returns: PPF or mutual funds?
Is PPF tax-free?
Can I withdraw money from the PPF Account before maturity?
What makes this risk factor fundamentally different from PPF and mutual funds?
Is a mutual fund an ideal tool for long-term investments?
What is the minimum investment in PPF?
Are there differences in the liquidity between PPF and mutual investment?
What fees could be incurred when investing in mutual funds?
How do I choose between PPF and mutual funds depending on the financial objective?
Is it permissible to invest in both PPF and mutual funds?
What is the basis for the taxation of mutual fund investments?
The basis of taxation in mutual funds depends on the type of fund and the holding period. Equity mutual funds' short-term capital gains (STCG) are taxed at 15%; long-term capital gains (LTCG) are taxed at 10% if the gains exceed₹1,00,000.
The period for debt mutual funds is 36 months. STCG is taxed according to the income tax slabs, and any LTCG would be taxed at 20% with indexation.
Which of the investment options provides safe and guaranteed returns and tax-saving features?
Which is better: PPF or mutual funds?
What are the lock-in periods for mutual funds and PPFs?
Which is more tax-efficient, PPF or mutual funds?
Should I claim PPF and mutual funds together?
Is PPF a lumpsum or SIP?
What is the main difference between PPF and Mutual Funds?
What are the advantages of PPF and Mutual Funds?
Other Important Articles about Mutual Funds
Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
Latest News
Read More
Renew & Download Policy Document, Check Challan, Credit Score, PUC & more
Anytime, Anywhere. Only on Digit App!
Rated App
Rated App
Scan to Download
