ByTheRupee - Personal Finance Show

Episode 10 : Should you invest in PPF or in Mutual Funds ! Let's find out.

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Public Provident Fund or in short PPF means an investment-cum-tax-saving instrument backed by the government. It was introduced more than 50 years ago and is quite popular even today. Since PPF is guaranteed by the government, it is completely secure with current interest at 7.1%. You can open a PPF account in a post office or a designated bank.

Let's see the main features of PPF which make it attractive even today:

  1. Duration : PPF has a minimum tenure of 15 years. It can be extended in blocks of 5 years if you wish.
  2. Investment limit:
    3. PPF minimum amount for investment starts from ₹500. The maximum amount in PPF that can be invested is ₹1.5 lakhs in a financial year.
  3. Tax-saving:
    4. Investments made under PPF are eligible for tax deduction up to ₹1.5 lakhs per year inclusive of all investment instruments under Section 80C of the Income Tax Act, 1961.
  4. Deposit frequency:
    5. Individuals must deposit into their PPF account at least once a year for the next 15 years.

    Mutual Funds are an accumulation of many individual company stocks such as Infosys, Exide, TATA, and many other companies. When you buy a mutual fund for a certain amount, you buy a certain portion of those company stocks. In many cases, the mutual fund's investment return on average of 12% over the long term, as companies reinvest that money in projects which generate revenue.

    We all aware of one famous line “Investment in mutual funds…(I will give you 5 second, complete the sentence in the comments section. ) ”

    Let me complete for you, “Investment is subject to market risk. Please read the brochure for more details”

    We have seen a glimpse of Mutual Fund's. We shall explore in future videos to come.

    Let us see the features of Mutual Fund Investment and why it should be in your investment portfolio :

    1. Return: If one invests in debt funds, one can expect to get at least 8 percent return while in equity mutual funds for the long-term the expected return would be at least 12 percent. But when investments are considered for a long term the ups & downs will average out and give a better return. Patience is a most important asset while investing in the stock market.
    2. Liquidity: Mutual funds are highly liquid. The units can be redeemed at any time with a few clicks of the buttons and the money will be deposited into the bank account within two-three working days with almost no charges when selected debt funds are chosen
    3. Taxability: In Mutual Fund investment, We shall consider two aspects :

      4. In long-term investment, long-term capital gains are levied on debt-fund investments,  here irrespective of your income tax slab, you need to pay 20% tax. Whereas short-term investments less than 3 years are taxed as per the income tax slab of the investor.

      Do check out www.bytherupee.com for more articles and podcasts on personal finance. Also, comment below on what topic you would like to know more about. Keep Subscribed to the channel

      Let’s dive back to the conclusion…

      If the investment is for 15 years or more, equity mutual funds should be chosen ahead of PPF. On average, the equity investment has given double-digit growth for an investment made for a period more than 15 plus years. But there are different ways of minimizing one’s risk by splitting into 75:25 % profile or even 50:50% but it all depends on an investor risk appetite.


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      ByTheRupee - Personal Finance ShowBy Darshan