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    PPF vs SIP: Which is the Better Long Term Investment? 

    • 5 min read
    • Last Modified Date: April 4, 2024
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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 

    AspectSystematic Investment Plan (SIP)Public Provident Fund (PPF)
    Investment TypeMutual FundFixed Income Investment
    ReturnsVariable, linked to market performanceFixed, predetermined by government
    RiskModerate to HighLow
    Investment FrequencyRegular intervals (e.g., monthly, quarterly)Annually
    TenureFlexible, typically long-term investmentFixed, 15 years with option to extend in blocks of 5 years
    Tax BenefitsTax efficiency on long-term capital gainsEEE (Exempt-Exempt-Exempt) status, Tax deduction under Section 80C
    Sovereign GuaranteeNoYes
    LiquidityGenerally high, can redeem units anytimePartial withdrawals allowed after specified lock-in period
    FlexibilityCan adjust investment amount and frequencyFixed contribution amount and annual deposits
    PurposeGrowth-oriented, wealth accumulationRetirement planning, long-term savings
    Type of Investor SuitedGrowth-oriented investors willing to accept market volatilityConservative investors seeking stable returns and tax benefits
    Lock-in PeriodNo lock-in period, but advisable for long-term investing15 years, with partial withdrawals permitted after 7 years
    Contribution LimitNo limitUp to ₹1.5 lakh annually
    Risk AppetiteModerate to HighLow
    AccessibilityAccessible through mutual fund platformsAvailable 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. 

    Assetmonk, a new age alternative investment platform specialising in commercial real estate and fractional ownership of high end commercial properties, is always ready to guide investors on their journey towards building a well-rounded and prosperous portfolio. 

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