What is a better investment option for 15 years tenure PPF or SIP in mutual funds?

Ppf vs mutual fund sip

PPF means Public Provident Fund. And SIP is a Systematic Investment Plan. So, before starting with any of these two, you must learn about the details. These two investments are related to long term financial goals. And if you are planning for an investment of fifteen years, you should compare these two.

Here is a comparison of PPF and SIP. Go through it to avoid some common mistakes people make while investing.

What is PPF or Public Provident Fund?

Public Provident Fund (PPF) is an investment scheme for savings by the Indian government. PPF is preferable to start with a fixed savings option. One can open the PPF account with the Post office or any reputed bank. The government of India introduced PPF to Indians in 1968 with the Public Provident Fund Act. It allows an investor to save for a tenure of 15 years. The minimum amount is like Rs. 500 per year. And an investor can save up to Rs. 1,50,000 per year.

What is SIP or Systematic Investment Plan?

You can invest in mutual funds through a Systematic Investment Plan. A SIP allows you to get some mutual fund units. So, you will not get harmed even when the value or price goes down. And here you can save a small amount at a specified interval of time. SIP is a market-linked investment option. The tenure has some time slots. It is like six months, one year, five years, ten years, 15 years, and even 20 years. There is no such lock-in period in SIP apart from ELSS.

A comparison of 15 years tenure of PPF and Mutual fund SIP

There are some factors in the basis of which we can calculate the benefits from both. These factors are:

Security and safety of investment

PPF is a low-risk investment option. The government regulates the interest rate of PPF. So, for a long run investment, PPF will be a risk-free savings mode.

SIP in mutual funds is a market-linked investment option. So, it cannot be as risk-free as PPF is. But some authentic mutual funds are excellent choices for a high return. Investment through SIP can ensure reducing market risk. But it cannot deny the risk at all.

Returns and benefits after investment

The interest rate of PPF fluctuates around 8% per annum. But it still promises an average return of your savings after 15 years. Here, you will get an assurance of benefits. You can opt for the PPF calculator online for calculating the amount you will get after 15years or more.

SIP in mutual funds also allows the investor to check with an online calculator. And SIP return rate is a bit high in comparison to PPF interest. But the interest rate is market-linked. But if you are a risk-taker, you can go for SIP for a more elevated amount of benefit.

The facility of liquidity

PPF has a lock-in period of 15 years. And you cannot break it like open-ended saving schemes. But you can take loans if you need based on your PPF deposit. You can make a  partial withdrawal of deposited money after five years of opening a PPF account.

SIP in mutual funds allows you to redeem invested amount even within a year of investment. But they charge a penalty for that. It is not valid only for close-ended funds. But you can always take a loan against the amount. But the interest rate for such loans is higher.

Tax benefits

PPF allows a tax deduction benefit up to Rs. 1.5 Lakh. It is under the section 80c of the Income Tax Act, 1961.

SIP in mutual funds redeems the earlier units first. Then the wealth gain amount gets taxation accordingly. They follow a First In First Out Principle.

Bottom line

If you are aiming for a low-risk investment option, PPF is a better choice. In comparison to SIP in mutual funds, PPF enables you to enjoy a tax-free life. But in terms of higher monetary benefits, SIP might be a better option if you ignore some market risks. But still, PPF occupies the first place in terms of the safety of investment for a longer period.