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SIP Vs PPF – Which Is A Better Investment Option?

SIP Vs PPF – Which Is A Better Investment Option?

If you’re looking for a new long-term investment avenue, your top choices include SIPs (Systematic Investment Plan) and PPFs (Public Provident Funds).

Both of these investment avenues require you to make recurring contributions to them. And both belong to different asset classes. Therefore, they have different risks and returns associated with them. So, PPF vs. SIP Mutual Fund in the form of SIPs, which one should you pick? Can a PPF Calculator vs. SIP calculator help?

In this article, we dive into both these investment options and help you choose one over another. Let’s begin.

What is a SIP?

A SIP is a long-term investment avenue wherein investors deposit a fixed amount of funds monthly in different mutual funds. The combination of these mutual funds depends on the investor's risk appetite and financial goals. But are they superior to PPFs? SIP or PPF which is better? Read on to find out.

What is PPF?

A PPF is a government scheme that allows investors to deposit a fixed lump sum yearly or as regular monthly instalments. These government-backed investment products are safe, and investors can redeem the principal and interest at the end of the tenure. But is PPF a good investment when compared to SIPs? Let’s take a better look at PPF vs SIP Mutual Fund differences to find out.

SIP vs PPF: A comparison

1. Amount invested

Both PPF and SIPs require you to contribute a small monthly sum to the investment. So, PPF vs Mutual Fund, which is a better pick? Well, you can decide the exact amount before choosing any scheme based on your financial obligations and investment goals. You can get started by investing as little as Rs. 500 in a PPF or a SIP. While you can invest only a maximum of Rs. 1.5 lakhs yearly in a PPF.

Clearly, if you're looking to invest a larger amount, SIP vs. PPF, SIP is the better choice.

2. Safety

When you invest in a SIP, the investment amount is divided. This means that your investments are subject to market fluctuations, and your returns will depend on how the market performs. Even so, you can be assured of good returns of between 12 to 18% with a trusted fund manager. So does that mean in the PPF vs. SIP mutual fund , Mutual funds win? Not quite.

With a PPF, there are no market risks involved. PPFs are government-backed investment schemes, and they give assured returns.

So, when you compare SIP returns to PPFs, PPFs offer more consistent returns. Still not sure which investment option to choose? Use an online PPF Calculator vs.SIP mutual fund calculator to find out. Alternatively, keep reading the blog to arrive at a conclusion.

3. Interest earned

The interest rate offered is the next point to consider when doing a SIP vs PPF comparison.

PPFs offer a nominal interest rate of roughly 7.1% per annum to investors in 2022. SIPs, on the other hand, offer higher interest rates ranging from 12% to 18%, depending on the market conditions. Want a more detailed comparison of which one is a better option for you? Use an online PPF vs SIP mutual fund calculator to find out.

Still, questioning is PPF a good investment or SIP? Perhaps, the following pointer will help you decide better.

4. Liquidity

SIPs are known to offer greater liquidity as compared to PPFs. Investors can redeem the funds within one to two business days if the funds are open-ended. But closed-ended funds with fixed tenures only allow redeeming funds after the term expires. Naturally, if you want greater liquidity, you should opt for an open-ended fund. But what about PPFs? Is PPF a good investment option?

Unfortunately, compared to SIPs, PPFs do not offer liquidity. They typically have a long lock-in period of up to 15 years. Besides, investors can only get a loan against their PPFs from the third and the sixth year of account opening and partially withdraw funds post the sixth year. Simply put, PPFs are more suitable for investors who don’t mind the lock-in period associated with mutual funds.

Still, questioning PPF vs mutual fund, which is better? Perhaps the taxes involved will give you a hint.

5. Taxation

SIPs are taxed based on investment tenure and the mutual fund scheme. Equity funds with a holding period of up to 12 months are taxed at 15% under short-term capital gains, while equity funds with a holding period of greater than 12 months are taxed at 10% under long-term capital gains. Non-equity funds, on the other hand, with a holding period of up to 36 months, are taxed based on the income tax slab rate and funds with a holding period of greater than that are taxed at 20% post indexation. But does such extensive taxation make PPF a good investment? Read on to know.

PPF investments of up to Rs. 1.5 lakh per annum are liable for tax deductions according to Section 80C of the ITA (Income Tax Act). Not only the amount invested but the interest and even the corpus that is withdrawn at the end of the tenure is liable for tax deductions.

The above comparison should give you a clear view of the differences between a SIP and a PPF. But if you want to view these in a tabular format, we’ve got you covered too.

SIP vs. PPF: Comparison Table

Amount investedCan start with Rs.500.Can start with Rs. 500 and deposit a maximum of Rs. 1.5 lakhs a year.
SafetyReturns are impacted by market rate fluctuations.Returns are guaranteed  and are dependent on the interest rates decided by PPF authorities. The interest rate is not linked to the market.
Interest earnedAnywhere between 12-18% depending on the market.Roughly about 7.1% per annum in 2022. These interest rates change every year.
LiquidityOffer greater liquidity through open-ended funds.Have a lock-in period.
TaxationTaxed under the Income Tax Act based on the type of the mutual fund.One can claim tax deductions on the amount deposited, the interest and the corpus withdrawn from the PPF under section 80C of the Income Tax Act.

SIP or PPF: which is better?

The answer to the question SIP or PPF, which is better, is – it depends. If you are looking for a risk-free, long-term investment option that guarantees returns, then you can invest in a PPF. But if you can stomach some risk, value liquidity, or want greater returns, get a SIP instead. Note that you can use a PPF vs mutual fund calculator to help you conclude quicker.

Get started with your SIP using the easy-to-use Tata Capital Moneyfy app. Compare SIP returns, use the PPF vs SIP mutual fund calculator to gauge your returns, and start your goal-based SIP today. Download the app from your App store today!

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