Mutual Fund Or PPF: Which Is A Better Investment Option?

Choosing an investment option between mutual funds and PPF
Mutual Fund Or PPF: Which Is A Better Investment Option?
Mutual Fund Or PPF: Which Is A Better Investment Option?

Every investor wants to earn more returns and take lower risks. But in the world of investment, returns and risks run in direct proportion to each other. It means higher the risk higher will be the return and lower the risk lower will be the return.

For example, if you invest in debt or fixed income instrument, you will get steady flow but lower return. And if you invest in equities, say for longer period of time, you will get higher return. Note that equities come with higher risks while debt or fixed income instrument comes with lower risk.

What is mutual fund and PPF?

Most of the mutual funds are actively managed funds, which are run by fund houses or mutual fund Asset Management Companies (AMCs). PPF or Public Provident Fund is run by central government and comes under fixed asset class category.


Sachin Parekh, Owner and Founder, Save N Protect Financial Planners, said, mutual funds investments are subject to market risks, and investments in PPF are safe as it is a government of India initiative.


 “In mutual funds, being market linked, returns are not guaranteed and range from 4 per cent to 15 per cent depending on the product selected. While in PPF, the government declares the rate of return (RoI) of PPF every year. Typically return on PPF ranges between 7 to 8 per cent,” Parekh said.

Tax benefits

a)   Mutual Funds

In mutual fund investments, according to Parekh, there is a 10 per cent LTCG or Long Term Capital Gains tax applicable if your returns are over and above Rs 1 lakh after holding it for more than one year. “Besides, 15 per cent to 30 per cent STCG or Short Term capital Gains depending on the holding period of the product selected,” Parekh said.

He goes on to explain that investments done in ELSS or Equity Linked Saving Schemes up to Rs 1.5 lakh are eligible for deduction under Section 80C of the Income Tax Act, 1961. However, maturity proceeds are taxed at 10 per cent LTCG, he added.

b)  PPF

Investments made in Public Provident Fund fall under EEE or Exempt, Exempt, Exempt category. Also, the invested amount is eligible for tax deduction under Section 80C up to Rs 1.5 lakh. “No tax payable while holding. Also maturity proceeds are tax free,” Parekh said.

Lock-in period

a)   Mutual Funds

Closed-ended funds like ELSS and FMPs or Fixed Maturity Plans have lock-in period of three 3 years. Whereas, open-ended funds don’t have a lock-in period but an exit load is payable depending on the product selected, according to Parekh.

b)  PPF

In PPF, there is a lock-in period of fifteen years that applies. After the fifth year, partial withdrawals are permitted, Parekh explained.

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