(Last Updated: May 7, 2020)
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SIP vs PPF: Which is Better Long Term Investment Option? Comparison

  • Systematic Investment Plan (SIP) is a small and easy plan offered to interested mutual fund investors. SIP scheme is very much similar to recurring deposit scheme wherein an investor invests small amount of money on regular basis. The SIP scheme helps an individual investor to invest under in the Mutual Fund scheme in instalment instead of a lump sum of amount.

    Let's check details on SIP vs PPF, a detailed comparison of these 2 popular long term investment options in India. We shall compare SIP and PPF with regards to various parameters.

    SIP or Systematic Investment Plan (SIP):
    SIP is a scheme brings the benefits of mutual fund to middle class individuals who have a smaller earning capacity and are not able to make huge lump-sum investment at a given time.

    PPF or Public Provident Fund:
    Public Provident Fund (PPF) Scheme was first launched in 1968. PPF is tax saving which was introduced by the Ministry of Finance (MOF) in India to help individual investors’ to save money as well as claim income tax benefits. The amount invested under the PPF scheme can be claimed as tax deduction under section 80C up to an overall limit of Rs.1.5 lakhs for the year in which investment is made. Also, the interest earned on deposits in the PPF account is not taxable.

    The dual tax saving benefit of investment amount as well as interest earned makes the PPF Scheme one of the most tax efficient instruments in India.

    PPF is a prominent scheme which encourages smaller earning individuals to invest under this scheme. PPF scheme is risk free and receives interest based on annual rate of return as prescribed by the government from time to time. Also PPF scheme is a very popular retirement savings scheme among Indians.

    In current periods majority of the scheduled recognized banks like ICICI, SBI, HDFC and others provide PPF account opening facility to their account holders.

    SIP vs PPF: Comparison based on Important parameters

    Investment Process:
    Under SIP: One can invest on regular instalment basis. As such, there is no requirement of lump sum payment. Although, you can invest in lumpsum as well.

    Under PPF: Under this scheme the investor has to make annual contribution. The investor can choose either the option to pay the contribution at different intervals or in lump-sum.

    Tax Benefits:
    Under SIP:  Based on the scheme opted under SIP, the tax benefit can be allowed or rejected. Various Mutual Fund Schemes are taxed differently based on whether they are Equity or Debt Mutual Funds.

    Under PPF: Any amount invested under PPF scheme along with any interest earned on the investment can be claimed as deduction from taxable income up to a limit of Rs.1.5 Lakh under section 80C.

    Under SIP:  Systematic investment plan (SIP) is subject to market fluctuations as any other investment scheme. But, SIP plan safeguards an individual from market peaks and drops as the investment amount is spread over the period of time and not accumulated in one go. This investment scheme allows oneself to average out the net impact of market crunches if any.

    Under PPF: As PPF is an government investment scheme thus there is no major risk of investment losses under this scheme.

    Lock In Period:
    Under SIP: The lock-in depends on the scheme opted.

    Under PPF: The lock-in period for all the funds invested in the PPF scheme is 15 years. But, the investor can continue the scheme for further 5 years without making any further investment.

    Withdrawal of Investment scheme:
    Under SIP:  There are no lock-in period for majority of the schemes and thus amount under SIP mutual funds scheme can be withdrawn easily as decided by the investor. You may incur mutual fund exit load though.

    Under PPF:  The PPF account cannot be closed before 15 years of period from the date the account was opened. However, the investor, if wishes then he or she can withdraw amount earlier subject to certain conditions.

    Note: Withdrawal can be made only under restricted scenario like medical condition , higher education or other reasons as specified by the government.

    SIP vs PPF: Conclusion

    PPF is low risk–low return investment scheme governed by government policy. Whereas SIP Mutual Fund schemes are high risk–return investment. It’s always better to have a balanced combination of both the investment schemes. You can enjoy a perfect balanced combination of risk-return and liquidity of funds as per your risk profile.

    SIP vs PPF: Summary view

    Based on individual capacity of risk taking and liquidity crunch, one can opt a preferable ratio of investment and invest in  both the schemes.

    Hope you understand the major differences between SIP and PPF. Where do you prefer to invest PPF or SIP in mutual funds? Do share your feedback.

  • Hi, Thanks for giving such helpful details. I already have a PPF account. I think maximum people in India do have a PPF account. It is the most common investment and tax saving option. So, I also opened one. Now, I have a decent income, so looking for some other investing ideas. I can take moderate risk only. Is SIP a good way to invest my excess funds? Can anyone who has invested, let me know a bit more about it? Some feedback on it is much appreciated.

  • I think PPF investment is best fit for safe investors in India. The ones who want fixed and risk free returns. You can contribute a fixed amount to PPF every year and build a good post retirement fund. Also, the tax exemptions on PPF make it the best choice amongst investors.

    But, yes the benefits of investing through SIP in mutual funds can't be ignored too. In fact, SIP in mutual funds has got huge popularity in the recent years.
    So, I think firstly invest in PPF then think of other long term investment options.

  • @Anmol My vote also goes to Public Provident Fund. I am a retired person and know the importance of money saved through PPF. I have been saving in my PPF account and really feel good to have an adequate fund for my after retirement life.
    My suggestion to all the youngsters, do build one such fixed income generating investment fund.
    I know people are attracted towards mutual funds and stocks these days. I am not against it. You may go for these if you have surplus and can take risk.
    My one cent is, do have a fixed return giving fund like PPF.

  • @Harleen I think SIP in mutual funds is a better way of investing as compared to age old method like PPF. You can invest even a small amount through Systematic Investment Plan (SIP).

    So, this seems to be an ideal choice for the people who wish to invest small amount of money regularly. Now, if you ask me, SIP vs PPF which is better, I'll definitely favour SIP in mutual funds looking at the returns and other important factors.

  • That sounds a wise option. Invest in PPF first and then if you have any surplus you can go for mutual funds and other investment options. At least, you have some money safe in PPF that shall guarantee fixed return.

  • @Harleen Definitely SIP wins provided if one invests in good mutual funds. PPF is safe but doesn’t give high returns. SIP in mutual funds gives you a chance to earn more as compared to other investments.

  • Yes, SIP is a systematic way to invest in mutual funds. If you don't have money to invest a big or lump-sum amount the SIP is a good alternative to it.
    You get some respite since there's no burden of depositing huge amounts and you can start investing with a small amount of Rs.500 only. Also, you can plan your investments fortnightly or monthly as you feel comfortable. So, each month an auto debit can be set to transfer money into the plan chosen.

  • Thanks for suggestions!! Now i have a decent income, so looking for some other investing ideas. I can take moderate risk only. Is SIP a good way to invest my excess funds? Can anyone who has invested, let me know a bit more about it? Some feedback on it is much appreciated.

  • @Sbsfin SIP sounds to be a common way of investing these days. But, there's no surety of fixed returns. So, if you can take some risk then only go for it.

  • Both are good. This depends on your cash flow situation. Suppose if you have lumpsum then there is no question for SIP But if you don't have lumpsum and getting regular cash flow like saving from salary then SIP is a good option. So there is no actual comparison for this. This all depends on your financial situation

  • @Harleen I think SIP is a better investment alternative. It builds a habit of savings without putting an extra financial burden on us. A fix amount even if a small one is good to start saving.

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