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    SIP vs PPF

    • 5 min read
    • Last Modified Date: January 10, 2024
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    SIP vs PPF: Which is better for you? Did you know you can invest in mutual funds through SIPs and PPFs? SIP (Systematic Investment Plan) is a way of investing in mutual funds, where a specific amount of money is invested in mutual funds on a monthly/quarterly/annual basis. The recurring investment strategy of a SIP protects you from the downtrend of the market peak and helps to flatten the curve between the previous investment amount and the present investment amount. It is also important to note that a SIP provides a greater extent of mutual fund units than investing in one go.

    Whereas, Public Provident Fund or PPF is a savings scheme that is guaranteed and approved by the Indian government. It is a regulated fund, which is managed by various financial institutions of the Indian government. The returns from PPF are revised by the government every quarter. To avail of this scheme, you will need to open a bank account in a post office or any other major bank that provides the facility of PPF accounts. The latest interest rate of PPF for the Q3 (Oct-Dec) 2022-23 is capped at 7.1%.

    Also read PPF Interest Rates for FY 2022-23 (October-December).

    A thorough comparison: SIP vs PPF

    1. Returns

    The returns from PPF always seem to be consistent as it is a government-regulated fund. The precise percentage of return is always revised every quarter. The return percentage has been consistently fluctuating around 8% over the past decade. From Q2 in 2018 to Q1 in 2020, the return rates were between 7.8-8.0%. But, after the Coronavirus pandemic hit in Q2 of 2020, the return rate has been constant at 7.1% to date.

    Whereas, mutual funds have a wide array of returns from various providers. The annualized return rates of 1Y,3Y, or 5Y depend upon which mutual fund you choose. For example, Frontline Equity by Aditya Birla Sun Life gives a return of 9.6% and SBI’s Small Cap Fund gives a return of 15.83%. All in all, the return percentage of SIP depends upon various factors like market conditions as well as the efficiency of the managing firm.

    2. Safety

    Safety is an important thing that you want to know in the comparison between SIP and PPF. 

    PPF is a savings instrument/fund which is backed and guaranteed by the government of India. The government utilizes the money that you put into the PPF and gives a stable return for it. The possibility of fraud/default when investing in PPF is highly unlikely. As government-owned assets are always kept under strict surveillance, there has not been any single instance of mismanagement in PPF funds. 

    But, mutual funds or SIPs are entities that are highly dependent on market conditions. The market decides whether your investment will bring a fruitful result or not. The variation in market rates of equity funds decides the return percentage on your investment. There might be risks associated with your SIP as it is mostly managed by private organizations, where defaults might happen.

    3. Taxation

    PPF investments usually have a tax exemption of up to ₹1.5 lakh p.a. under the 80C Section of the I.T. Act of 1961. The interest/return earned on PPF is also tax-free, but the income should be declared when filing the returns. The maturity amount of the PPF is also exempted from taxes. All in all, it is a complete tax-free savings instrument.

    On the other hand, the income generated from SIPs or mutual funds is taxable, which depends upon the type of the mutual fund that is being invested. ELSS funds have been exempted from taxes. But, tax exemption is not applicable on other types of mutual funds. The capital gains on mutual funds of equity type are eligible for the exemption of taxes of up to ₹1 lakh p.a.

    4. Liquidity

    Mutual funds are highly liquid and can be sold at off anytime as per the wish and need of the investor. But, PPFs is not as liquid as SIPs or mutual funds as they have a lock-in period of 15 years. One can take a loan against the PPF but after the 3rd year of the PPF account opening up to the 6th year. Loans can also be taken against mutual funds, but they’re not very profitable due to high-interest rates.

    Also read PPF Withdrawal Rules: How to Withdraw Your Partial & Complete PPF.

    SIP Vs PPF: Which one should you choose?

    It can be a tough decision to choose between the two, as both types of investment instruments have their own merits and demerits. If talked about in short, then mutual funds or SIPs have a higher return percentage and higher risk, whereas PPF has a lower return percentage and lower risk.

    If you want to choose a government-regulated fund with lower risks and economic benefits like tax exemption, then PPF is perfect for you. And if you want higher returns by compromising a bit with safety and tax exemption along with good liquidity, then SIPs will fit into your requirements.

    On a lighter note 

    SIP or PPF, both are conventional forms of investment and have been in existence for a long time. But, they are limited to a specific extent of returns and benefits. To help you with a modernized and dynamic investment opportunity, Assetmonk has got some pretty impressive commercial real estate investment opportunities!

    You can be a proud owner of some of the best real estate properties across the country. With features like fractional ownership, it is a great time to invest in such projects. Explore now!

    SIP Vs PPF: Which is Better FAQs

    Being a government regulated and backed fund, PPF is much safer than SIP.

    No, not all SIPs are tax-free. SIPs like ELSS funds are tax-free and one can enjoy a tax exemption of up to ₹1.5 lakhs per year.

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