Mutual Funds vs PPF: Know The Best Investment Plan For You

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Nowadays, investors have a plethora of investment options to choose from, which can suit a wide range of investment goals, be it beating the market returns, low risk, liquidity focussed instruments, or tax benefits. The thumb rule is that every investment option invariably involves a trade-off between risk and return.

Public Provident Fund (PPF) and mutual fund investments are long-term investment tools. However, PPF is completely a risk-free investment while mutual funds are market-linked, and hence ‘mutual fund investments are subject to market risk.’ According to experts, Mutual Funds work well for those investors who have a high-risk appetite while PPF is a suitable investment tool for an investor who has a low-risk appetite.

Investors should always keep in mind that the most important metric is not the returns achieved but the returns weighed against the risks incurred. Ultimately, nothing should be more important to investors than the ability to sleep soundly at night”- Seth Klarman 

Speaking on PPF vs Mutual Funds; Kartik Jhaveri, Director — Wealth Management at Transcend Consultants said, “Both PPF and Mutual Funds are two different sets of investment tools but one should have a diversified portfolio where one must have a PPF account too. How much a person should invest in PPF and mutual funds depends upon the risk appetite of the investor. If the investor has a higher risk appetite, then mutual funds are a better money making tool for such investors. But, even when the risk appetite of the investor is high, investment in PPF is a must for getting assured returns.”

Mutual funds are broadly divided into equity-oriented, debt-oriented, or hybrid schemes, based on the risk appetite of the investor. The most popular method of investing in Mutual funds is a Systematic investment plan (SIP). Under a SIP, one can invest a fixed amount on a regular basis in the Mutual fund scheme.

Public Provident Fund is a long-term scheme operated and guaranteed by the Central Government with the idea of instilling a savings culture amongst citizens. PPF invests predominantly in fixed income securities that generate a fixed rate of return and ensure income stability. Thus by using a PPF calculator, one can compute the expected returns based on the annual investment amount.

However, Kartik Jhaveri said that PPF is income tax exempted while mutual funds incur long-term capital gains tax. He said that PPF investment falls under the EEE category, and hence one’s investment up to Rs 1.5 lakh in a particular financial year is income tax exempted, and the interest, as well as maturity amount, are also tax exempted. One should have a diversified portfolio even when the risk appetite of an investor is high. One should invest in both PPF and mutual funds as there has to be some assured return in one’s portfolio, he added.

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