SIP vs PPF

SIPs and PPFs are both investment tools that aid you in saving funds for your retirement. But what are the differences between SIP vs PPF? Are they both equally safe?

What is SIP?

SIP stands for Systematic Investment Plan and it is not a separate product but a way to invest in mutual funds. Mutual funds refer to an investment tool that gathers the investors’ money, like you, and invests it in bonds, stocks, or other similar assets. 

There are two ways you can invest in mutual funds - lumpsum amounts or through recurring installments. When you set an amount to be deducted periodically to be invested in mutual funds, it is referred to as an SIP.

What is PPF?

PPF stands for Public Provident Fund and it is a savings scheme supported by the government. This scheme is available to everyone irrespective of their employment status. Employed, self-employed, retired, and even unemployed people can open PPF accounts. 

It is a voluntary savings scheme and you can contribute anywhere from Rs.500 to Rs.1.5 Lakh every year. The PPF interest rates are set by the government every quarter.

SIP vs PPF - Differences at a Glance

Here are some differences between the two which will help you answer the question ‘SIP or PPF which is better for you’ - 

Criteria SIP PPF

Interest Rates

Depends on the market

Decided by the government

Investment Amount

Starting from Rs.500 

Anywhere between Rs.500 to Rs.1.5 Lakh in a year

Way of Investment

Daily, weekly, fortnightly, monthly, or yearly basis

Monthly 

Tenure

Anywhere from 6 months to 20 years

Minimum 15 years, extendable by blocks of 5 years

Lock-in Period

None

5 years

Liquidity

High

Low

Risk Involved

High

Low

Tax Benefits

Some categories are tax-free

Exempt Exempt Exempt

SIP or PPF Which is Better for You?

Are you still confused SIP or PPF which is better for you? Here is a detailed comparison between SIP vs PPF so you can make an informed decision - 

There is a huge difference between the structure of these two investment tools. SIP allows you to choose the frequency you want to invest in, and there is no limit to the investments. You can invest directly in mutual funds or go through a broker or agent. 

On the other hand, PPF is a government-backed investment tool, and there is a limit of Rs.1.5 Lakh yearly investments. You can pay the amount as lumpsum or in 12 installments. Once your tenure is over, you get the total amount as well the interest incurred.

Saving on texes is a great motivation to invest for some people. PPF comes under the exempt-exempt-exempt category, which means, the investment amount, the interest offered, as well as the final amount is tax-free. 

Whereas SIP or mutual funds are not exempt from taxes. Only one category of the mutual funds, namely the ELSS is tax-free.

The rates of interest on PPF are decided by the government every quarter which makes it more stable than SIP or mutual fund rates. The current interest rate of PPF for Q3 of the financial year 2023-24 is 7.1%.

Mutual funds are market linked and the returns may vary depending on the condition of the market.

Invetments always come with some level of risks, and it is important to read about them in detail before investing. SIP is more riskier as compared to PPF. In case of PPF, you get assured returns and your money is in safe hands.

As SIPs are market linked, they are affected by the highs and lows in the market. To negate the effects of market dips, you need to invest in SIPs for a long-term.

Liquidity refers to how easily you can convert your investments into ready cash. 

As PPF has a 5-year lock-in period, you cannot withdraw the amount during that period. The term is 15 years and partial withdrawals are allowed after the start of the 5th year of the year of account opening.

There are various rules and regulations in place for withdrawing funds from the PPF account. These rules do not exist when it comes to SIPs, and they are very liquid in nature. You can withdraw the invested amount any time by just paying a small exit charge.

Conclusion

Both SIP or Mutual Funds and PPF accounts can be opened by all Indian citizens irrespective of their employment status. NRIs cannot open new PPF accounts but if they alreays had an account while staying in India, they can reap its benefits.

PPF offers better tax benefits but is not as liquid as SIPs. SIPs can offer higher returns but are also riskier as they are market-linked. You can compare the two and decide ‘SIP or PPF which is better’ for you depending on your retirement goals, income, and risk appetite.

Apart from such retirement plans, if you are ever in need of urgent funds, the option of taking an instant personal loan from moneyview is there. You can get a loan of Rs.5,000 to Rs.10 Lakh without furnishing too many documents. 

SIP vs PPF - Related FAQs

No, you cannot have 2 PPF accounts. Only one PPF account can be opened per person.

To get maximum interest on PPF funds, you should invet in your account by the 5th of every month. If you invest a lumpsum amount at the end of the financial year, you will earn interest for only one month.

In the end, if you should invest yearly or monthly in PPF depends on your personal preference.

SIP or PPF which is better depends on your personal financial goals and risk appetite. PPF gives sure but lower returns, whereas SIPs are riskier but can give higher returns.

After PPF, ELSS is a great investment choice from the taxation point of view. You can claim exemption for up to Rs.1 Lakh of investments in your ELSS account.

You can start investing in PPF at any age. However, if you choose to open an account before you turn 18, an adult will need to manage your account.

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