SIP vs PPF : A Detailed Comparison

(Last Updated On: April 21, 2017)

A 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. In this blog SIP vs PPF we compare SIP and PPF with regards to various parameters

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.

Please find a few popular investment schemes and their returns as of writing of this post.

Scheme Return for 3 years Return for 5 years
SBI BlueChip Fund-Reg(G) 22.74 18.82
Birla SL Frontline Equity Fund(G) 21.23 17.29
Franklin India Prima Plus Fund(G) 24.55 17.89
Mirae Asset India Opportunities Fund-    Reg(G) 24.37 18.88
HDFC Mid-Cap Opportunities Fund(G) 33.33 24.77

 

The 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 for the year in which investment was made and also the interest earned on deposits in the PPF account are not taxable under section 80C up to an overall limit of Rs.1.5 Lakh.

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.

READ  Want to know more about PPF ? Here is our Guide On PPF - Public Provident Fund India

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

Investment Process?

Under SIP: One can invest on regular instalment basis and there is no requirement of lump sum payment. You can invest in lumpsum though 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 regular interval or in lump-sum.

Tax Benefit

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.

Risk

Under SIP:  SIP investment plan are subject to market fluctuation 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 whether in the said scheme is 15 years. But the investor can continue the scheme for further 5 years without making any further investment.

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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. But the investor, if wishes then he or she can withdraw amount after 7th financial year from the year of opening account.

Note: Withdrawal can be made only under restricted scenario viz., Death, marriage, medical condition , higher education or other reason as specified by the government.

Conclusion

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

Summary view SIP vs PPF

Particulars Systematic investment plan (SIP) Public Provident Fund (PPF)
Tax Benefit Contribution made under SIP system (except when ELSS scheme is opted) is not eligible for tax benefit. Gains may or may not be exempt under various circumstances. 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.
Lock-in Period None except in ELSS funds. 15 years
Risk SIP investment plan are subject to market fluctuation but  the SIP plan also 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. As PPF is a government investment scheme thus there is no major risk of investment losses under this scheme.
Withdrawal Policy There are no lock-in period for major of the scheme and thus amount under SIP mutual funds scheme can be withdrawn easily as decided by the investor.  The PPF account cannot be closed before 15 years of period from the date the account was opened. But the investor, if wishes then he or she can withdraw amount after 7th financial year from the year of opening account.

Note: Withdrawal can be made only under restricted scenario viz., Death, marriage, medical condition , higher education or other reason as specified by the government.

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

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Hope this post helped you understand major differences between SIP and PPF.

If looking for investment in Mutual Fund SIP, you can checkout our popular post, Best Mutual Fund SIPs to invest in India in 2017

You may also like our popular post, SIP or Lumpsum, which is better?

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