Today’s topic of discussion is a comparison between PPF and Mutual Funds, which is right for you?
I have divided the topics of today’s discussion into several parts.
We will discuss one by one below then, you decide whether to go for the mutual fund or invest in PPF.
1. PPF
PPF(Public Provident Fund)is a Government managed long term investment scheme, in which a fixed return will be given to you. The rate of interest of PPF is 7-8%. It gives profit to investors at a fixed rate, that means the amount of your investment is predetermined. But in present the interest rates have been seen to decline, which will be a cause of tense.
If you want to know more about Mutual Funds, the Full Guide is here, I have created a full category for Mutual Funds, just click here to go there.
2. Mutual Fund:
Return of Mutual Fund is not fixed, because it depends on market. Fluctuations. Here your investment may be decrease or increase as per market situation. But in the case of long term investment Mutual Funds give good return, because the effect of market fluctuations absorbed over time. So, if you want to invest in long term investment and ready to take a risk, then Mutual is more profitable than PPF to you.
3. Risk:Mutual Fund or PPF?
PPF: PPF is a completely safe investment method. It is a governmental scheme, so investors do not have to take any risk. You will get a fixed profit at the end of the term, and there are no chance of losing money. But since its returns are limited, your purchasing power may decrease slightly due to inflationary effects in the long run.
4. Mutual Fund:
Mutual Fund is a risky investment platform, because it is related to Share Market. But many people thought that, it is not true– Mutual Funds are very risky or the risk of losing money is high. Professional Fund Managers try to reduce risk by spreading your money around. But if you invest in short term, you are more likely to lose in quick market fluctuations. Risk will be low and profit is high in long term investment.
5. Income Tax benefits:
PPF: The another benefit of PPF is tax exemption benefit. Under section 80C, tax exemption is available on investment up to 1.5 lakh rupees per year in PPF. Besides it profits earned are completely tax free at the end of the term in PPF. So who wants to save tax, PPF is a perfect method of investment for those.
Mutual Fund:
There are not any benefits of tax saving in Mutual Funds. Here profit is taxed as per tax slab. But, some special Mutual Fund like- ELSS (Equity Linked Savings Scheme) give the opportunity of tax saving, where tax exemption will be get under section 80c. Though Mutual Fund profits are taxable, its higher return potential makes it attractive to many.
6. Withdrawal Rules:PPF or Mutual Fund?
PPF:
Generally, the investment tenure is 15 years in PPF, and it is very difficult to withdraw before time. Partial withdrawal can be made before maturity under certain circumstances and certain rules. So if you you have need money in any emergency situation, PPF will not give you any benefit. It is suitable for only long term investment.
Mutual Fund:
The great advantage of Mutual Funds is, that you can withdraw your funds whenever you needed. It means there are more liquidity in Mutual Funds, which gives you the opportunity as per your necessity. So who wants to invest in Mutual Funds as necessary, Mutual Funds can be profitable for them.
7. Amount of investment:
PPF: A maximum of Rs.1.5 lakh can be invested in PPF. It is not possible to invest more than that money. Besides it one person can open only one account in PPF. This creates a restriction for those who want to invest a certain amount.
Mutual Fund: There are no maximum limits of investing in Mutual Funds. You can invest as you wish. So if you want to invest more than 1.5 lakh, then you can invest the rest in a Mutual Fund after investing the maximum amount in PPF. Investing a higher amount in Mutual Funds increases the chance of getting higher returns in the long run.
8. Legal Protection:
PPF:
PPF is a Government managed Scheme, which is protected by law. PPF is protected under section 14(A), which don’t let you to worry about money security. Here Government has the main responsibility, so it is very safe.
Mutual Fund:
Mutual Funds are not protected by the Government. It depends on the market, and your investment does not have any protection from the Government. But, regulatory bodies like SEBI are responsible for managing and regulating funds.
Conclusion:
Who don’t want to take any risk and want a safe return, this is the ideal method of investment. Tax savings benefits have also made PPF popular. On the other hand, Mutual Funds offers higher return and potential and faster liquidity. Who are willing to invest long term with risk, Mutual Funds can be a good option for them.