Investing In PPF vs. Mutual Funds: Which Is a Better Investment?


It’s never too early to start thinking about your financial future; several investing alternatives are available to fit whatever risk profile an individual may have. While investors’ primary goal has historically been to generate profit, industry experts argue that the rewards you get from investing should be compared to the level of risk you are prepared to face. This is why many people are considering the benefits of investing in a PPF vs. Mutual Funds. However, it can be challenging to decide which one offers better returns on investment. This article breaks down the key differences and helps you figure out which type of account makes more sense for you.

What Is PPF?

The Public Provident Fund, or PPF as it is more often known, is a long-term, fixed-interest-earning investment issued by the Government of India. Thus, you can create a PPF account with a post office or a bank, but the money will be deposited with the government in the end. The minimum account balance should be Rs 500, while the highest in a financial year must be Rs 1.5 lakh. 

To keep the account operational, you must make at least one donation every financial year once it is opened. In one financial year, you can deposit once or up to 12 times. 

Features of PPF:

Mentioned below are some of the salient features of the PPF scheme:

  • PPF is a secure investment option.
  • It offers an assured rate of return on the entire deposit amount, which could be higher than that provided by other financial instruments like bank deposits and fixed deposits in banks. There are no risks to this type of investment as it is done through post office channels only.
  • PPF can give better returns than any other instrument available for those who want to invest for long-term purposes. Its interest rates are set regarding an inflation index (CPI) every year or two years, whichever is earlier.
  • The government guarantees that the PPF account holder will get not less than the initial deposit amount.
  • After the initial 15-year period has expired, you can extend the investment duration in 5-year increments.

What Is A Mutual Fund?

A mutual fund is a type of professionally managed investment account. This means that the fund manager will be responsible for buying and selling stocks, bonds, or other assets on behalf of each investor in the pool. The returns from these investments are then distributed to investors as income distributions according to who invested more money into the funds at any given point. 

In general, higher-risk Mutual Funds should provide greater potential rewards and carry more significant potential downsides due to changes in market conditions, like an economic downturn or recession that affects profitability significantly for companies and investors with lower-level holdings/limited diversification.

Features Of Mutual Funds:

  • Mutual funds offer a diverse range of investment options. For example, you can find mutual funds that invest in stocks, bonds, and cash.
  • This diversity ensures that the risk is spread across different sectors, making your investments more stable than if they were all concentrated in one industry or type.
  • Mutual funds allow an investor to invest in a professionally managed portfolio. This means the investments can be handled by professionals who have experience building and managing stocks, bonds, or cash portfolios.
  • The plans typically need a minimum investment of Rs 500. SIPs allow you to invest in a lump sum or installments. However, there is no limit to how much you may invest.
  • Under Section 80C, investments in ELSS schemes qualify for a tax deduction. This tax advantage is not available through other programs. Capital gains are earned returns taxed based on the length of time the fund has been owned.

The Difference Between PPF And Mutual Fund

Basis  Mutual Fund  PPF
Type of plan Investing in the stock market Investing in fixed-income securities
Investment minimums and maximums  Maximum – no limit minimum – Rs 100 Minimum – 500 rupees; maximum – 1,50,000 rupees
Market Risk Exposed To Risk Nil
Return Depending on the plan and the market’s performance. 7.1% compounded on a yearly basis
Liquidity  Highly Liquid Not So Liquid
Tax benefit on returns Returns are taxed based on the kind of plan and the length of time you hold your investment before redeeming it. Taxes are not deducted from your refund.
Tax benefit on investment Under Section 80C, only ELSS investments are tax-free. Tax-free under Section 80C
Partial withdrawals and loans Not Availableble Available
Tenure  No fixed tenure 15 years, with a 5-year extension option

Which should you select between a PPF and a mutual fund?

Both investing options have advantages and disadvantages. Choosing between the two is a matter of personal preference and risk tolerance. PPF is an option if:

  • You are a risk-averse person.
  • You’re looking for a sure thing.
  • You’re looking to make a long-term investment.
  • You want to save as much money as possible on taxes.

Mutual funds, on the other hand, are appropriate for you if:

  • You want to participate in the stock market but are unsure about making stock bets on your own.
  • You require liquidity.
  • You’re willing to take on the related dangers and have a high tolerance for them.
  • Your investment returns should be inflation-adjusted and market-linked.

The Bottom Line

Understanding how PPFs and mutual funds function is critical. You have the option of include mutual funds and PPF in your portfolio.


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