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Two of the longest standing, stable, and secure investments that traditional investors prefer for saving tax and long term investing are: Public Provident Funds (PPF) and Systematic Investment Plans (SIP).
The question today is: out of PPF and SIP, which is the better long term investment? And that’s what we’re here to find out.
What is Public Provident Fund
The Public Provident Fund, or PPF, is a tax savings investment scheme offered by the government of India to encourage people to invest and save money.
You deposit a certain amount, every year, and the account is locked in for 15 years, which is why PPF is considered a long term investment.
You can’t withdraw money before 15 years, but you can take a loan out against your PPF account, keeping your PPF account as collateral. The interest rate on PPF accounts is set by the government and is currently 7.1% per annum, but is subject to change.
Public Provident Fund: Some Features
- The interest you get from PPF accounts is not subjected to taxes, so if your account earns money on interest then there will be no tax applied on it. If you have a PPF account, there are certain advantages that come with it.
- After 5 years of opening the account, you can withdraw some amount for emergency medical situations or when your child needs to go higher education.
- Also, in case something happens to the person who has this type of savings and they pass away – they could nominate another individual for getting their money from PPFs as per law rules!
- The Public Provident Fund scheme is an effort by the government towards helping people save up for their future journeys financially without any risk involved with safety measures too – all Indians including those residing abroad may participate into these plans if desired.
- The minimum yearly investment amount is Rs 500. The maximum yearly deposit amount is Rs 1.5 lakh.
PPF Market Size in India
As per the last available government, data, Public Provident fund investments saw a jump of 134% in 9 years in 2022.
Understanding SIPs: Systematic Investment Plans
Systematic Investment Plan or SIP, is another popular long term investment strategy.
It’s considered one of the best long term investment strategies, and here’s why: SIPs allow you to invest a fixed amount of money at regular intervals. These could be monthly intervals, or quarterly. The investment is usually done into a mutual fund.
Regardless of market ups or downs, the investment intervals remain consistent, allowing you to invest consistently over time.
How SIPs Work
When you invest through a SIP, you purchase a predetermined number of units of the mutual fund or investment instrument at the current market price on the date of investment. This means you buy more units when the price is low and less when the price is high. This strategy, known as rupee cost averaging, helps to mitigate the impact of market volatility and has the potential to generate long-term wealth growth.
SIP Market Sentiment
SIPs are a very popular investment option among Indian mutual fund investors. They allow you to invest in a disciplined manner while mitigating market volatility risks, and the scheduled intervals of investment make sure you don’t have to worry about the market timings too much.
SIPs are great for beginner & risk conservative investors. You can smart small, and slowly build your way up to larger amounts as you learn more about investing.
How Big is the SIP Market?
Since SIPs are one of the most popular long term investments in India, the market size reflects exactly that.
As per data from AMFI, the Association of Mutual Funds in India, the inflows in SIPs in the first 11 months of 2023 rose to 1.66 lakh crores, much higher than the total SIP investment in 2022. This suggests that investors are significantly favouring SIPs.
In February 2024, SIP inflows set a new record at Rs 19,187 crore, as per AMFI. And SIP folios crossed 8.2 crore INR.
The Securities & Exchange Board of India (SEBI) also recently lowered the minimum investment level for SIPs from 500 to 250, and even Rs 100 for what are now being called micro-SIPs, which is further fuelling investment.
PPF vs SIP
| Aspect | Systematic Investment Plan (SIP) | Public Provident Fund (PPF) |
| Investment Type | Mutual Fund | Fixed Income Investment |
| Returns | Variable, linked to market performance | Fixed, predetermined by government |
| Risk | Moderate to High | Low |
| Investment Frequency | Regular intervals (e.g., monthly, quarterly) | Annually |
| Tenure | Flexible, typically long-term investment | Fixed, 15 years with option to extend in blocks of 5 years |
| Tax Benefits | Tax efficiency on long-term capital gains | EEE (Exempt-Exempt-Exempt) status, Tax deduction under Section 80C |
| Sovereign Guarantee | No | Yes |
| Liquidity | Generally high, can redeem units anytime | Partial withdrawals allowed after specified lock-in period |
| Flexibility | Can adjust investment amount and frequency | Fixed contribution amount and annual deposits |
| Purpose | Growth-oriented, wealth accumulation | Retirement planning, long-term savings |
| Type of Investor Suited | Growth-oriented investors willing to accept market volatility | Conservative investors seeking stable returns and tax benefits |
| Lock-in Period | No lock-in period, but advisable for long-term investing | 15 years, with partial withdrawals permitted after 7 years |
| Contribution Limit | No limit | Up to ₹1.5 lakh annually |
| Risk Appetite | Moderate to High | Low |
| Accessibility | Accessible through mutual fund platforms | Available at designated bank branches |
After looking at both PPF, and SIP, the best long term investment for you to invest in depends on your personal financial goals and portfolio.
For investors seeking stability, assured returns, and tax efficiency, PPF is the better choice. It is a well-known investment strategy, that rarely offers surprises, and gives you security and peace of mind.
Conversely, for those with a higher risk appetite, growth-oriented mindset, and willingness to navigate market fluctuations, SIP presents an attractive opportunity. It’s like venturing into uncharted territories, embracing volatility as a pathway to potential wealth creation and financial prosperity.
Invest with Assetmonk
For any successful investment, finding the right balance between risk and reward is key. Factors such as your risk tolerance, investment goals, desire for stable monthly income or long term potential goals, all play a huge role.
The best way to do that is by strategically planning out your investment strategy, and creating space for a number of diversified investments in your portfolio. Striking the right balance helps investors remain confident even in the face of market fluctuations.
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