Which one is better—PPF or MF? - letsdiskuss
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Vikas joshi

Sales Executive in ICICI Bank | Posted on | Share-Market-Finance

Which one is better—PPF or MF?


Entrepreneur | Posted on

I have always been in favor of Mutual Funds. And even now, when the government has hiked the rate on small savings schemes, PPF will still be my second bet here. The reason is simple: Mutual Funds delivers higher returns. And while sure it is riskier than Public Provident Fund, if you have done the research correctly, you can easily tame that risk.

Also, it’s important right now that one must not get carried away with the government’s decision to increase the rate onreturn of PPF. Remember, the hike is only marginal and not so much as the media is hyping. Second, the rate has increased only for a quarter. Yes, the signs look positive that the government may decide to increase it further; BUT you cannot be sure of that.

Also, here’s the biggest argument. A hike in rate doesn’t necessarily mean an increase in return. You need to look at the real return here. Indeed, you get more back more—but that’s a nominal figure. When you factor the inflation and high CPI, the real return even with the hiked rate might not evencompare to what you’re enjoying right now. So, think on real terms.

This is not to say PPF is bad. It’s an incredibly good choice. The risk is low and the return consistent. You definitely need it in your portfolio. BUT when you’re deciding between Public Provident Fund and Mutual Funds, I will always suggest you go for MF. Just do your research carefully and make the right decision. The bet will always deliver you optimum rewards irrespective of how much the government decides to hike the rate.

(Courtesy: MutualFundWala)


@letsuser | Posted on

Provident Fund(PF), EPF(Employee Provident Fund), NSC( National Saving Scheme) and SCSS(Senior Citizens Savings Scheme) are the most accepted saving instruments with guaranteed returns. However, there is a lot of doubt as to which option is better- PPF vs Mutual Funds

A senior citizen having a huge corpus (retirement lump sum) to either invest in PPF or go for Debt Funds.

ELSS vs PPF- both enjoy the benefits of 80C- Which on to select?

PPF vs Equity Oriented Mutual Funds as an Investment Option for capital appreciation

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Public Provident Fund

Provident Fund is a long- term savings investment options established by the Govt. of India in 1968. It provides tax benefits on withdrawal as well as on contributions. It implant the habit of savings among Indian citizens for their life after retirement. The scheme is backed by the Govt. of India and there are no possibility of capital erosion. It also gives guaranteed returns which are related to G-secs.

Update: The present PPF rate is 7.6%.

Some Salient Features of PPF

Eligibility– The applicant must be an Indian resident.

Investment- Minimum-500 per annum; Maximum- 1.5 lakhs.

Returns- Govt announces interest rate every quarter based on G-secs.

Lock-in is 15 years and can be extended to another 5 yrs.

Liquidity– This part is somewhat tricky, although you cannot redeem the amount invested. However, you can avail loan against the amount invested which is subject to some upper limit and after some years. For example- loans can be availed after 3 yrs. of initiating the PPF with a maximum of 25% of the balance after the 1st Financial year.

Tax implications– PPF enjoys E-E-E status(Exempt-Exempt-Exempt) wherein the contribution, interest, and withdrawals are tax exempted. PPF also enjoys the benefits of 80C wherein the contribution (up to 1.5 lakhs) is deducted from your annual income to arrive at your taxable income which occasionally helps in reducing your slab rate.

PPF Interest Rates

Mutual Funds

A mutual fund is a group of stocks or bonds that a professional Fund Manager buys on your behalf. He creates a portfolio of securities as per the category in which the fund belongs like equity oriented mutual funds invest majorly in equities. People invest in mutual funds as they don’t have the expertise, time and energy to generate above average returns. There are three broad categories of Mutual Funds.

Equity – Invest in stocks to earn high returns. These bear high-risk also.

Debt – These are low-risk investments. Returns are typically 2-3% higher than FD, with full liquidity.

Balanced – these invest a portion in equity and rest in debt. Therefore they bear moderate risk and give moderate returns.

Some Salient Features of Mutual Funds

Eligibility– Anyone having a bank account and PAN card invest in Mutual Funds.

Investment– There is no such limit of minimum investment. One scheme offers SIP of Rs 100. Also, there are few good schemes with Rs 500.

Returns– Mutual Funds returns are market linked. The following table looks at average 3-year returns as per different categories.

Lock-in- Overall, mutual funds do not have a lock-in period. However, ELSS (Equity Linked Savings Scheme) similar to PPF, have a lock-in period of 3 years.

Liquidity– Most mutual funds are 100% liquid. Although close-ended schemes have some liquidity issues.

Tax implications-Equity oriented mutual funds (>65%) are tax-free if held for more than one year.

PPF and Mutual Funds are different investment option altogether. An individual can invest in both options as these have different features. PPF gives guaranteed returns while mutual funds returns are market linked. An individual should first gauge his/her risk taking ability and then invest in different investment options available in the market.


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