PPF Vs SIP: Which is better for investment?

Investment decisions must follow a careful analysis and informed knowledge so that we get the best results in line with our expectations. Here we compare between the two investment vehicles namely Systematic Investment Plan vs Public Provident Fund to understand which is better for investment.

What do they mean to an investor?

A Systematic Investment Plan or a SIP is a kind of mutual fund investment. Under an SIP investment option, the investor subscribes to a given mutual fund through a pre-defined amount payable on a monthly or any other regular interval basis. Since the investors are buying units of the said mutual fund by paying a standard amount over a well-defined tenure, the investments will not be affected by the market volatility.

A PPF investment is a conventional savings scheme introduced by the government of India under the 1968 Public Provident Fund Act. The objective of this investment is to enable people make savings with encouraging returns over a long period of time. Year on year, the government decides the rate of interest over this investment. PPF is a kind of long term investment with a 15 years tenure. The minimum and maximum amounts that can be invested in a PPF scheme is Rs 500 and Rs 1,50,000 respectively.

How these two schemes compare

Returns

Since an SIP investment is done in mutual funds, the returns will depend on the given mutual fund’s performance. The returns on SIP will be as per the current market trends. The returns on PPF are calculated on an annual basis and are decided by the government.

Purpose

SIP investments are suitable for most people as they can satisfy short term, medium and also long term goals. They are deemed ideal for wealth creation. However, a PPF investment will suit only long term investments. It can be the best scheme for retirement benefit, education or marriage of children and not for other kinds of investment needs.

Tax benefits

Investments in SIP will invite both short term and long term capital gains tax. Nevertheless, investment in an equity linked savings scheme will enable you to claim deductions of up to Rs 1,50,000 under Section 80C of the Income Tax Act 1961. A PPF investment falls under Exempt, Exempt, Exempt (EEE) category that means the returns and also investments are tax free.

Investment Tenure

The investment tenure is flexible in case of SIP between 6 months and 1 to 20 years or more. The PPF scheme allows a minimum investment tenure of 15 years. After the maturity period, the investment can be extended for 5 more years.

Liquidity

SIP investment carries the highest degree of liquidity when it comes to withdrawals. You can get the entire mutual fund amount credited to your bank account linked with the plan within just 3 working days. From a PPF scheme, you can withdraw a partial amount only from the 6th year of investment.

How to choose between them

The choice of whether an SIP or PPF investment scheme will suit you depends on your investment goals. Decide if you are looking for a risk free long term investment in a PPF plan or you would expect higher returns that carry some risks and more liquidity in a SIP plan.
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