Comparison share market Vs PPF: Which is better for investment
Investors expect low risk, tax savings and high returns as some of the desirable characteristics from the investment vehicles they choose. PPF and share market investments fulfill these expectations to a great extent and hence they are some of the most popular investment options. Here we compare between these two and decide which one among them is the better one for investors.
Risk factor in PPF and Share Market
PPF is a government backed scheme. Hence your investment is safe in PPF. One of the biggest advantages of PPF account is that your invested amount will earn a fixed interest over the year. The interest rate of the PPF scheme is revised year on year by the central government. Share Market investments are administered by Asset Management Companies. These companies operate the mutual fund schemes by pooling in the investments from the investors and investing the accumulated amount in several kinds of securities. Share market investment cannot assure a fixed return. However, in most cases, the returns can be higher than that of PPF. Share market investments also carry more risks than PPF.
Returns from investment
Generally, the annual rate of interest of PPF is around 8%. PPF assures fixed returns. Without any risks, you can hope to earn the interest applicable year on year. There are different kinds of share market investments and the returns differ depending on the scheme you choose. Liquid funds provide returns ranging from 7% to 9% per year. There are also equity funds that can give you 10% to 15% per year. One downside to share market investments is that there is no guarantee of return and the returns depend on market conditions.
The duration of investment is one of the main criteria that separate PPF and share market investments apart. The minimum investment duration of a PPF scheme is 15 years. Due to its long tenure, PPF is an ideal type of investment for long-term savings. Share market investments do not carry any fixed tenure. It is possible to invest in a fund for as little as 6 months and you can choose to invest in share market schemes as long as you want. This high degree of flexibility that the share market investment provides investors proves ideal for investors who want more liquidity.
PPF investment is eligible for tax exemption for a maximum limit of Rs. 1.5 lakhs per year. The returns that result from the PPF investment are also exempted from tax under Section 80C of the Income Tax Act.
Choosing between PPF and Share Market
PPF and share market investments have their own advantages and disadvantages. The decision on which one to choose for investing depends on what you expect from your investment. If you expect the safety of investment combined with tax benefits and fixed returns, PPF is the best option to choose. If you are willing to take risks in return for higher returns, you can choose from share market investment options.