Which is Better Investment: PPF or Mutual Fund

Low risk, High returns, Tax savings, and Portfolio liquidity are some of the most common things investors expect from their investments. Public Provident Funds (PPF) and Mutual Funds effectively fulfill these requirements. But which one is better than the other? Read this post to find out.

The investment options in India are now as diverse as the nation is known to be. While the investment objective of every investor can be different, most people generally look out for options that have minimum risk and high return potential. Tax savings and portfolio diversification are two other common expectations. While there are plenty of options that do fulfill these criteria, PPF and Mutual Funds are currently two of the most popular.


Let us have a look at what are Mutual Funds and PPFs and some crucial factors that can help you decide between these two:

1. Investment Risk


PPF: PPF is a government-backed savings scheme that offers a fixed annual interest rate, making it a very low-risk investment. The interest rate is set by the Central Government annually, ensuring that your investment remains safe.


Mutual Funds: These are managed by Asset Management Companies (AMCs) and involve pooling money from multiple investors to invest in various securities. Mutual Funds can potentially offer higher returns than PPFs, but they come with higher risk as the returns depend on market performance.


2. Returns Potential


PPF: The annual interest rate for PPF is generally around 8%. The returns are fixed and guaranteed, making it a safe choice for risk-averse investors.


Mutual Funds: The returns on Mutual Funds vary widely. Liquid funds may offer returns between 7% – 9% per annum, while equity funds can provide 10% – 15% or even more. However, these returns are not guaranteed and can fluctuate based on market conditions.

3. Investment Duration


PPF: PPF has a minimum investment duration of 15 years, with the option to extend in blocks of 5 years. This long tenure makes it suitable for long-term savings goals.


Mutual Funds: These do not have a fixed tenure. You can invest for as short as six months or as long as you prefer, providing flexibility to meet different investment objectives.

4. Tax Savings


PPF: Investments in PPF are tax-free up to Rs 1.5 lakh per year under Section 80C of the Income Tax Act. The returns generated are also tax-exempt.


Mutual Funds: Equity-Linked Savings Scheme (ELSS) is a type of Mutual Fund that offers tax exemptions up to Rs 1.5 lakh per year under Section 80C. Other Mutual Funds are taxed based on the type and duration of the investment.

5. Portfolio Diversification


PPF: Investments in PPF are primarily in fixed-return instruments, limiting the scope for diversification.


Mutual Funds: One of the key benefits of Mutual Funds is portfolio diversification. You can choose from various types of funds that invest in a range of securities, allowing you to tailor your investment to your specific needs and risk tolerance.




Both PPF and Mutual Funds have their unique advantages. If you prioritize safety, fixed returns, and tax benefits, PPF might be the better choice for you. However, If you are willing to take on some risk for potentially higher returns and value portfolio diversification, exploring the different types of Mutual Funds could be beneficial.


Ultimately, the choice depends on your individual investment goals, risk tolerance, and financial situation. Consider these factors carefully to make an informed decision that aligns with your objectives. Happy Investing!

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