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Systematic Investment Plan vs Public Provident Fund

A Systematic Investment Plan or a SIP is a mode of investing money in a mutual fund. Under a SIP, you subscribe to a mutual fund with a standard amount payable on a monthly basis or any other frequency. Since you are purchasing mutual fund units over a specified tenure, your investment is less likely to get affected by market volatility. A Public Provident Fund is a traditional savings scheme introduced by the Government of India under the Public Provident Fund Act, 1968. The purpose of this investment is to enable people to garner savings with a suitable rate of returns over a long period of time. The rate of interest is decided by the government every financial year and the latest rate of interest for Jan 2019 is 8%. A PPF is a long term investment plan with a tenure of 15 years. The minimum amount of investment in a PPF is ₹500 while the maximum amount is ₹1,50,000/- per year.

Difference Between SIP and PPF

Names of Mutual Fund SchemesMutual Fund Category1-Y Return %
TypeA SIP is a mode where your money is invested in a mutual fund with a small amount on a regular basis rather than investing with a lump sum amount. The amount paid is utilised to purchase units of a mutual fund based on their prevailing Net Asset Value. There is no limit on the maximum investment amount.The maximum amount of investment you can make in one financial year is ₹1,50,000/-. You can either make this investment as a lump sum or in 12 equal installments.
ReturnsSince SIPs invest in mutual funds, the returns are also depended upon the performance of mutual funds as per the current market-linked returns.The returns are calculated on an annual basis. The returns are fixed at the time of account opening and so is the rate of return. The interest rate is decided by the government.
ObjectiveSIP investment in mutual funds are ideal for all, short term, medium term and long term goals. They are ideal for wealth creation and fulfilment of goals.A PPF is ideally suitable for only long term investments of 15 years or more. Thus, it is an excellent option for retirement planning, meeting your children’s education or marriage.
Tax BenefitsSIP investment in a mutual fund attracts both, short term and long term capital gains tax. However, an investment in an Equity Linked Savings Scheme can allow you to claim deductions on invested amount of up to ₹1,50,000 as per Sec 80C of the Income Tax Act, 1961.Falls in Exempt, Exempt, Exempt (EEE) meanings along with a tax deduction on invested amount of up to ₹1,50,000 as per Sec 80C of the Income Tax Act, 1961, all returns and interest received under a PPF scheme are tax free.
Investment TenureYou have the option to select any investment tenure under an SIP. It can range from 6 months or 1|5|10|15|20 years or more. The minimum investment tenure under a PPF is 15 years, post the maturity period, you can top-up the investment for a further 5 years.
Lock-in PeriodSIP investment in mutual funds do not have a defined lock-in period. Only ELSS comes with a mandatory lock-in period of 3 years.The lock-in period of a PPF is 15 years.
FlexibilityA SIP provides complete liquidity when it comes to withdrawal from a plan. The entire mutual fund amount will get credited to your linked bank account within 3 working days.Since it is a long-term investment, you are allowed to make a partial withdrawal only post 6th year from the date of policy commencement.
RiskSince mutual funds are subject to market-linked returns, they carry a considerate amount of risk. This is countered by the high rate of returns which a mutual fund offers. A PPF is a very safe type of investment which provides guaranteed fixed returns. The risk is completely borne by the government.

Returns in Systematic Investment Plan vs PPF

As mentioned above, the returns in a SIP is based on the type of mutual fund while the returns on a PPF are based on the interest rate predefined by the government during the beginning of the financial year.

Benefits of Investing in SIPs

  • Ideal and cost effective for investors who cannot make a one- time lump sum payment.
  • Helps one inculcate a habit of regular savings.
  • You can start with a minimum investment amount of ₹500 per month.
  • They are simple and easy to begin with. You can open a free SIP account with any mutual fund house.
  • Facilitates the benefit of rupee cost averaging.

Benefits of Investing in PPF

  • Safest type of investment as it comes with guaranteed returns at a fixed rate.
  • The entire amount plus interest is tax-free post the 15 year time period.
  • Flexibility to invest in 12 equal installments or as a lump sum amount over a financial year.
  • Option to renew your PPF account for an additional 5 years post the 15 years tenure.

FAQs on Systematic Investment Plan vs Public Provident Fund

Can a senior citizen open a PPF account?

Yes, there is no upper limit for individuals to open a PPF account.

Can I invest lump sum in PPF?

Yes, you can invest a maximum lump sum amount of ₹1.5 lakhs per year in a PPF scheme.

Can PPF amount be withdrawn before maturity?

Yes, you can make a partial withdrawal post completion of 6th year from the date of policy commencement. This amount will be subjected to nominal charges and penalties.

Is investing in SIP a good idea?

Yes, it is an ideal way of investing in case you do not have a huge sum to invest at once. Also, it comes with good market-linked returns.

Is PPF a good investment in India?

Yes, people looking for safe and guaranteed returns can look at this investment option

Is PPF better than LIC?

Both the instruments serve different purposes, while PPF is just investment, LIC plans are a combination of life insurance and investment.

Is SIP safe?

Not completely, since it invests in mutual funds, it carries a considerable amount of market related risk.

What is interest rate of PPF in SBI?

The interest rate of PPF in SBI is 8%.

What is the best time to invest in PPF?

The earlier you start, the better it is. This is applicable for all investments.

What is the minimum amount to invest in PPF?

The minimum amount of investment in a PPF can be as low as ₹500.

Which is better investment PPF or SIP?

Both have its own set of advantages and disadvantages. One must make an informed decision based on their risk appetite.

Which is better SIP or recurring deposit?

SIP and RDs have own benefits and limitations. One must chose an investment option based on the risk tolerance level.

Which is the best tax saving investment?

There are multiple tax saving instruments under Sec 80C of the Income Tax Act, 1961. You can invest in various tax saving instruments such as Life Insurance Plans, ULIPs, NPS, ELSS etc.

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