Public Provident Fund vs Mutual Fund
A lot of investment avenues are available these days that have put investors in a dilemma of where to invest. No denying the fact that investors choose where to invest as per their respective risk appetites.
Out of so many investment avenues, we will look into the two major ones:
Public Provident Fund and mutual funds are long-term investment tools. In mutual funds, investors can invest for a shorter period of time according to the needs & goals of the investors. Although investment in PPF is for a longer period of time i.e. its lock-in period is of 15 years. Generally, investors with a low-risk appetite select to invest in PPF while investors with a higher risk appetite, select to invest in mutual funds. Ideally, prudent investors should invest in both investment tools as per their goals & needs. Even investors with a higher risk appetite should consider investing in both PPF as well as a mutual fund.
Difference between PPF and mutual funds:
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Public Provident Fund
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Mutual Fund
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Investment type
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PPF is the saving option run by the government, which offers investors, a safe option of investment with a lower risk.
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Mutual funds are run by the fund managers, who offer investors to reap optimal benefits from the market and market linked-instruments like equity, indices, etc. Fund managers also invest in debt-related instruments.
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Returns
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Returns of PPF are fixed and guaranteed by the government. The rate of return is calculated on annual basis, which mostly varies around 8 per cent p.a.
The current rate of PPF returns are 7.1 per cent (FY 2021-2022)
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Returns are based on the performance of the fund i.e. how assets perform. Returns of the mutual fund are usually market-linked. The strategy of fund managers can outperform the market and give higher returns.
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Mode of investment
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In order to keep active accounts, investors have to invest some amount every year.
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Investors can invest via SIP or they also have an option to invest a lumpsum amount. Usually, investors choose to invest via SIP as they get the benefit of investing small amounts, develop saving habits and also, get the benefit of rupee cost averaging.
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Minimum amount of investment
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Rs 500
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Rs 500 (for SIP)
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Maximum amount of investment
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Rs 1,50,000
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No upper limit
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Maturity period
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15 years- You can extend your investment beyond 15 years with block periods of 5 years.
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There is no maturity period as such. Investors can hold for long-term or short-term as per their needs and risk exposure.
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Lock-in period
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The mandatory lock-in period is of 15 years.
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There is no lock-in period except for closed-ended funds and ELSS (which comes with a mandatory lock-in period of 3 years).
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Risk
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PPF is a risk-free investment instrument as it is run by the government. Investors receive guaranteed returns.
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Risk is quite higher as compared to PPF as mutual funds invest the corpus of investors in various asset classes, which faces volatility for eg- equity-oriented investments and also, invests in instruments that are not affected by market volatility for eg- debt funds.
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Tax benefit
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PPF enjoys the benefit of EEE i.e. exempt, exempt, exempt, which means you get benefit on investment amount u/s 80C up to the limit of Rs 1.5 lakh. Your interest amount earned is also exempted from tax and at the time of withdrawal of maturity amount, it is also tax-free.
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Mutual fund schemes such as ELSS enjoys the benefit of EET that means you get benefit u/s 80C up to the limit of Rs 1.5 lakh on your investment amount. The accumulated interest is exempted but T denotes that the withdrawal amount is taxable.
Other schemes of mutual funds do not enjoy any tax benefit.
**(Tax treatment of mutual fund)
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**Tax treatment of mutual funds:
Short-term capital gains:
Non-equity-oriented investments: As per the slab rate of Income Tax.
Equity-oriented investment: Flat 15 per cent.
Long-term capital gains:
Non-equity oriented investments: Flat 20 per cent with the benefit of indexation.
Equity-oriented investments: Exempted up to Rs 1 lakh while above Rs 1 lakh, it will be taxed at the rate of 10 per cent without indexation.
The following table depicts the rate of PPF returns which are declared quarterly:
