SIP VS PPF

Aligning your investments with your goals is like selecting the right playlist for your road trip – both can make your journey smooth and enjoyable! The Systematic Investment Plan (SIP) in mutual fund schemes and the Public Provident Fund (PPF) are popular names in the world of investing. They can offer unique advantages and cater to distinct goals. If you are stuck in the PPF vs. SIP battle, this article can help you arrive at a suitable decision. Find out all you need to know about these two investment options.

Understanding SIPs

SIPs are a method of investing in mutual funds. SIPs allow you to invest a specific amount in a mutual fund scheme of your liking. You can select the amount and frequency as per your needs and invest for as long as you like. It is important to note that SIPs are not investments themselves but rather a way to invest in mutual fund schemes. You can invest in different types of mutual funds like equity, debt, or hybrid funds via SIPs.

Understanding PPF 

PPF is a savings scheme backed by the Government of India. With a minimum deposit requirement of Rs 500 and a maximum deposit limit of Rs 1.5 lakh per financial year, it caters to a wide range of investors. The account matures in 15 financial years from the year of its opening. After that, you can either withdraw your money or extend the account in blocks of five years with additional deposits.

PPF also offers the flexibility of taking loans against the account balance from the third to the sixth financial year. Additionally, you can make partial withdrawals from the seventh financial year.

Now that you know the basics of each of these accounts, let’s compare the two to help you make a choice.

SIP vs PPF Comparison

1. Tenure of investment

SIPs provide you with the flexibility to choose the duration of your investments. It allows you to invest for as long or as short a period as you desire. However, the Equity-Linked Savings Scheme (ELSS), a specific type of mutual fund scheme, has a mandatory lock-in period of three years. You can withdraw your SIPs in ELSS only after the completion of three years. This lock-in period applies to each instalment separately.

In contrast, PPF has a fixed maturity period of 15 years but can be extended in five-year blocks after the initial period expires. Also, partial withdrawals are allowed from the seventh year.

2. Liquidity

SIPs offer higher liquidity as you can withdraw your funds at any time, making it a better choice if you need quick access to your money. The only exception here is the ELSS, which mandates a three-year lock-in period.

On the other hand, PPF offers less liquidity due to its longer lock-in period. However, it allows partial withdrawals from the seventh financial year, offering some financial flexibility.

3. Risk and returns

SIPs come with market risk as they involve investing in mutual fund schemes. Since mutual fund returns are market-linked, they cannot be predicted or assured. The degree of risk in SIPs depends on the type of fund chosen. For instance, equity funds can be relatively riskier compared to debt funds. That said, SIPs offer the advantage of rupee cost averaging, a concept that can average out your cost of investment over time.

In contrast, PPF is a low-risk investment that offers a fixed rate of return. Furthermore, PPF is a government-backed account, which provides an additional layer of security to your money.

4. Maximum investment limit

SIPs have no maximum investment limit. You can invest as much as you like according to your financial capacity and goals. On the contrary, PPF has a maximum annual investment limit set at Rs 1.5 lakh.

5. Tax-savings

SIPs in ELSS qualify for a tax deduction of up to Rs 1.5 lakh per annum under Section 80C of the Income Tax Act, 1961. SIPs in all other mutual fund schemes do not offer this tax benefit.

You can claim a tax deduction of up to Rs 1.5 lakh per annum under Section 80C of the Income Tax Act, 1961, for your investments made towards PPF.

Conclusion

The choice between SIPs and PPF depends on your risk tolerance, financial goals, and investment horizon. SIPs in mutual funds offer flexibility and liquidity but involve market risk. At the same time, PPF provides stability and a fixed return but requires a longer commitment and has certain limitations on the amount you can invest annually. You must consider a balanced approach by incorporating both options into your investment portfolio to achieve a diversified and well-rounded financial strategy.

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