If you’re looking for a new long-term investment avenue, your top choices include SIPs (Systematic Investment Plan) and PPFs (Public Provident Funds).
Both of these investment avenues require you to make recurring contributions to them. And both belong to different asset classes. Therefore, they have different risks and returns associated with them. So, PPF vs. SIP Mutual Fund in the form of SIPs, which one should you pick? Can a PPF Calculator vs. SIP calculator help?
In this article, we dive into both these investment options and help you choose one over another. Let’s begin.
A SIP is a long-term investment avenue wherein investors deposit a fixed amount of funds monthly in different mutual funds. The combination of these mutual funds depends on the investor's risk appetite and financial goals. But are they superior to PPFs? SIP or PPF which is better? Read on to find out.
Systematic Investment Plans (SIPs) are ideal for individuals who have a steady income and want to invest small amounts regularly rather than making large, lump-sum investments. They offer a disciplined approach to building wealth over time and are perfect for beginners, as they reduce the risk of market volatility through cost averaging. Additionally, SIPs are ideal for long-term investors looking to achieve financial goals like buying a home, funding education, or retirement.
A PPF is a government scheme that allows investors to deposit a fixed lump sum yearly or as regular monthly instalments. These government-backed investment products are safe, and investors can redeem the principal and interest at the end of the tenure. But is PPF a good investment when compared to SIPs? Let’s take a better look at PPF vs SIP Mutual Fund differences to find out.
Public Provident Fund (PPF) is an excellent investment instrument for investors seeking long-term investment opportunities with guaranteed returns and tax benefits. It is ideal for conservative investors who prefer government-backed options over market-linked products. PPF allows you to build a substantial retirement corpus, as it offers tax exemptions on contributions, interest earned, and maturity amount. However, it's important to note that PPF has a lock-in period of 15 years, making it unsuitable for short-term investments.
1. Amount invested
Both PPF and SIPs require you to contribute a small monthly sum to the investment. So, PPF vs Mutual Fund, which is a better pick? Well, you can decide the exact amount before choosing any scheme based on your financial obligations and investment goals. You can get started by investing as little as Rs. 500 in a PPF or a SIP. While you can invest only a maximum of Rs. 1.5 lakhs yearly in a PPF.
Clearly, if you're looking to invest a larger amount, SIP vs. PPF, SIP is the better choice.
2. Safety
When you invest in a SIP, the investment amount is divided. This means that your investments are subject to market fluctuations, and your returns will depend on how the market performs. Even so, you can be assured of good returns of between 12 to 18% with a trusted fund manager. So does that mean in the PPF vs. SIP mutual fund , Mutual funds win? Not quite.
With a PPF, there are no market risks involved. PPFs are government-backed investment schemes, and they give assured returns.
So, when you compare SIP returns to PPFs, PPFs offer more consistent returns. Still not sure which investment option to choose? Use an online PPF Calculator vs.SIP mutual fund calculator to find out. Alternatively, keep reading the blog to arrive at a conclusion.
3. Interest earned
The interest rate offered is the next point to consider when doing a SIP vs PPF comparison.
PPFs offer a nominal interest rate of roughly 7.1% per annum to investors in 2022. SIPs, on the other hand, offer higher interest rates ranging from 12% to 18%, depending on the market conditions. Want a more detailed comparison of which one is a better option for you? Use an online PPF vs SIP mutual fund calculator to find out.
Still, questioning is PPF a good investment or SIP. Perhaps, the following pointer will help you decide better.
4. Liquidity
SIPs are known to offer greater liquidity as compared to PPFs. Investors can redeem the funds within one to two business days if the funds are open-ended. But closed-ended funds with fixed tenures only allow redeeming funds after the term expires. Naturally, if you want greater liquidity, you should opt for an open-ended fund. But what about PPFs? Is PPF a good investment option?
Unfortunately, compared to SIPs, PPFs do not offer liquidity. They typically have a long lock-in period of up to 15 years. Besides, investors can only get a loan against their PPFs from the third and the sixth year of account opening and partially withdraw funds post the sixth year. Simply put, PPFs are more suitable for investors who don’t mind the lock-in period associated with mutual funds.
Still, questioning PPF vs mutual fund, which is better? Perhaps the taxes involved will give you a hint.
5. Taxation
SIPs are taxed based on investment tenure and the mutual fund scheme. Equity funds with a holding period of up to 12 months are taxed at 15% under short-term capital gains, while equity funds with a holding period of greater than 12 months are taxed at 10% under long-term capital gains. Non-equity funds, on the other hand, with a holding period of up to 36 months, are taxed based on the income tax slab rate and funds with a holding period of greater than that are taxed at 20% post-indexation. But does such extensive taxation make PPF a good investment? Read on to know.
PPF investments of up to Rs. 1.5 lakh per annum are liable for tax deductions according to Section 80C of the ITA (Income Tax Act). Not only the amount invested but also the interest and even the corpus that is withdrawn at the end of the tenure are liable for tax deductions.
The above comparison should give you a clear view of the differences between a SIP and a PPF. But if you want to view these in a tabular format, we’ve got you covered too.
| SIP | PPF | |
| Amount invested | Can start with Rs.500. | Can start with Rs. 500 and deposit a maximum of Rs. 1.5 lakhs a year. |
| Safety | Returns are impacted by market rate fluctuations. | Returns are guaranteed and are dependent on the interest rates decided by PPF authorities. The interest rate is not linked to the market. |
| Interest earned | Anywhere between 12-18% depending on the market. | Roughly about 7.1% per annum in 2022. These interest rates change every year. |
| Liquidity | Offer greater liquidity through open-ended funds. | Have a lock-in period. |
| Taxation | Taxed under the Income Tax Act based on the type of the mutual fund. | One can claim tax deductions on the amount deposited, the interest and the corpus withdrawn from the PPF under section 80C of the Income Tax Act. |
Historical returns of PPF
| Period | Rate of return |
| January - March, 2019 | 8.00% |
| October - December, 2018 | 8.00% |
| July - September, 2018 | 7.60% |
| April - June, 2018 | 7.60% |
| January - March, 2018 | 7.60% |
| October - December, 2017 | 7.80% |
| July - September, 2017 | 7.80% |
| April - June, 2017 | 7.90% |
| January - March, 2017 | 8.00% |
| October - December, 2016 | 8.10% |
| July - September, 2016 | 8.10% |
| April - June, 2016 | 8.10% |
| April 2015 - March 2016 | 8.70% |
| April 2014 - March 2015 | 8.70% |
| April 2013 - March 2014 | 8.70% |
-Equity-oriented funds: Short-term equity-oriented mutual funds (held for less than 12 months) are taxed at 20%. Whereas, long-term equity-oriented mutual funds (held for more than 12 months) are taxed at 12.5%.
-Debt-oriented mutual funds: All debt-oriented mutual funds are taxed as per your applicable income tax slab, regardless of the holding period.
| Factor | SIP (Systematic Investment Plan) | PPF (Public Provident Fund) |
| Investment type | SIPs involve investing in market-linked instruments like mutual funds or equities, offering the potential for higher returns. | PPF is a government-backed, fixed-income investment option that guarantees a fixed return, making it a safe and secure choice for conservative investors. |
| Investment goal | SIPs are ideal for wealth creation and achieving long-term financial goals, such as buying a home, funding education, or planning for retirement. | PPF is designed for long-term savings, particularly for retirement planning. |
| Tax benefit | SIPs, particularly Equity Linked Savings Schemes (ELSS), offer tax benefits under Section 80C of the Income Tax Act. However, returns from SIPs are subject to capital gains tax, depending on the holding period. | PPF offers significant tax benefits, including deductions under Section 80C and exemptions for all contributions, interest earned, and maturity proceeds. |
| Maturity period | The maturity period for SIP investments depends on the chosen mutual fund scheme. You can continue SIPs for as long as you wish. | PPF has a fixed maturity period of 15 years. You can extend the account in blocks of 5 years after maturity. |
| Liquidity | SIPs offer high liquidity, allowing you to redeem your investments at any time. | PPF offers low liquidity, with partial withdrawals allowed only after 7 years. |
| Risk | SIPs carry a higher risk due to market volatility, but they also offer the potential for higher returns. | PPF is risk-free, backed by the government, and offers a fixed return. |
No, you cannot do a SIP in PPF. SIPs are associated with mutual funds, where you invest a fixed amount regularly. PPF, on the other hand, is not as structured as a SIP. However, you can simulate a SIP by making regular monthly deposits into your PPF account.
PPF can be both a lump sum and a periodic investment. You can choose to invest a lump sum amount at once or spread your contributions throughout the financial year, depending on your preference.
PPF is a government-backed investment, making it a low-risk option. Moreover, the Contributions, interest earned, and maturity proceeds are all tax-exempt under Section 80C.
SIPs generally have the potential to offer higher returns than PPF, but they also come with higher risk. PPF is safer but provides more modest returns. Your choice should depend on your risk tolerance and investment goals.
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15 October 2024
9 mins read
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