Whether you are starting afresh or have vast experience in this field, you may get confused several times as to which one to choose as your investment plan—SIP or PPF? While there is no hardcore rule that only one of them is the best, the comparison aims to enable you to make better investment decisions based on your financial goals. You may also use PPF Calculator and SIP Calculator to put your financial goals into real numbers.
What are SIP and PPF?
SIP is one method to invest in mutual funds (we refer to SIP in the context of mutual funds here) that allows you to invest a fixed amount in a fund every month. It averages out the purchase price and protects you from the markets’ high volatility.
PPF is a savings scheme regulated by the government that requires a fixed amount of investment every year. They have fixed return percentages that are set by the government every quarter. Most banks and Post Offices provide a facility to open a PPF account with them.
Difference between SIP and PPF
| Parameters | SIP | PPF |
| Returns | Market-linked and hence depends on the performance of the portfolio of a mutual fund. | The government decides the interest rate. For FY 2020-21, it is 7.1% currently. |
| Suitability | Suitable for all and generate the best returns for medium- to long-term goals. | Suitable for long-term investment of 15 years or more only. Ideal for retirement planning or meeting children education or marriage expenses. |
| Tax Benefits | a) Only the equity-linked savings scheme (ELSS) mutual funds will allow you to get a maximum deduction of Rs. 1.5 Lakhs under section 80C of the Income Tax Act, 1961.
b) Both short-term and long-term capital gains are taxable for mutual funds. |
a) PPF investment up to Rs. 1.5 Lakhs is allowable as a deduction under Section 80C of the Income Tax Act, 1961.
b) All returns are exempt from tax, including interest amount.
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| Lock-in Period | Do not have a lock-in period. Only ELSS has a mandatory lock-in period of 3 years. | A mandatory lock-in period of 15 years has to be followed. |
| Withdrawal Facility | Quite flexible, you can withdraw any amount anytime except for ELSS funds that require a lock-in period. | As a long-term investment instrument, it allows partial withdrawal facility only after 5 years. |
| Minimum and Maximum Investment | Minimum investment of Rs. 500 per month and no limit for the maximum amount of investment | Minimum investment of Rs. 500 and Maximum Rs. 1,50,000 in one financial year |
| Period of Investment | Investment can be made for any period between 6 months to 20 years. | Investment requires a minimum period of 15 years which is expandable in blocks of 5 years. |
| Risk Involvement | SIPs are risky as they are market-linked. | PPF is a 100% safe investment type, as the Government backs it. |
Conclusion
Succinctly, ignoring capital gain taxes, SIP investments tend to give more returns in the long run, while PPF investments are safe, tax-exempt and provide fixed returns. Based on your requirements and financial goals, you may pick one as both are great investment choices in their respective ways.
