Which is a better option for investing – SIP or PPF?

PPF(Public Provident Fund) and SIP (Systematic Investment Plan) are totally meant for two different asset class in itself

PPF can be elucidated as

• Debt instrument with Floating Coupon/Interest Rate that is revised by the government
• The lock-in period is minimum 15years
• Entire Maturity amount is tax free

SIP is a route to invest in stocks or mutual funds which represents equity asset class

Why SIP is better – I have tried to answer it using a post earlier

Is investing in equity mutual funds through a Systematic investment Plan (SIP) a better option than lump sum investments during the current market volatility?

Now coming to the pros & cons of PPF Investment and SIP (in stocks or mutual funds)

Advantages of PPF

• Maturity amount completely tax free
• Fixed interest rate on the money invested (not susceptible to fluctuations or market fall)
• You can get tax deduction benefits under old tax regime under section 80C upto ₹1.5 Lacs

Disadvantages of PPF

• Lock-in period of 15years
• Partial withdrawal only possible at fixed intervals
• Loan against PPF is upto 25% of the invested amount

Advantages of SIP (in Mutual Funds)

• No lock-in
• Over a period of 10–15years, SIP in Mutual Funds have shown to give returns around 12–16% annually (this can be higher depending on the mutual fund and theme of the fund)
• You can use ELSS(Equity Linked Saving Scheme) Mutual Fund Distribution to get benefits of tax deduction benefits under old tax regime under section 80C upto ₹1.5 Lacs with lock-in of only 3years
• Loan against Mutual Fund(Invested via SIP) is upto 80% of the invested amount

Disadvantages of SIP (in Mutual Funds)

• For Mutual Fund held more than 1year, only the first ₹1Lac is tax free. Post which, there is a tax at 10%
• Rate of Return can vary depending on geopolitical situation and country’s financial prudence
• Rate of Return is also dependent on the mutual that you select and the time you enter into the market using the SIP route

Choose your investment vehicle inline with the risk appetite, growth expectations, time horizon.

Hope this helps

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