Mutual Funds Vs PPF - Which Is Better
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A Mutual Fund scheme is a type of financial instrument which is made by a pool of money collected from many investors. The AMCs invest in securities like company shares, bonds, stocks, debts, and other assets by mutual fund companies. The AMCs manage these open-ended investments. Mutual fund companies allocate the fund in different securities. This helps its investors to grow their wealth through their investments.
Public Provident Fund (PPF) is a retirement savings scheme offered by the Government of India with the aim of providing a secure post-retirement life to everyone. The minimum deposit you must make in the account per financial year is Rs.500 and it can go up to Rs.1.5 lakh. In addition to providing retirement savings, you can also claim income tax benefits on the amount you invest in the account.
Advantages and Benefits of Investing in Mutual Funds in India
The following are about the advantages of mutual funds.
1. Liquidity
The most important benefit of investing in a Mutual Fund is that the investor can redeem the units at any point in time. Unlike Fixed Deposits, Mutual Funds have flexible withdrawal but factors like the pre-exit penalty and exit load should be taken into consideration.
2. Diversification
The value of an investment may not rise or fall in tandem. When the value of one investment is on the rise the value of another may be in decline. As a result, the portfolio’s overall performance has a lesser chance of being volatile.
Diversification reduces the risk involved in building a portfolio thereby further reducing the risk for an investor. As Mutual Funds consist of many securities, investor’s interests are safeguarded if there is a downfall in other securities so purchased.
3. Expert Management
A novice investor may not have much knowledge or information on how and where to invest. The experts manage and operate mutual funds. The experts pool in money from investors and allocate this money in different securities thereby helping the investors incur a profit.
The expert keeps a watch on timely exit and entry and takes care of all the challenges. One only needs to invest and be least assured that rest will be taken care of by the experts who excel in this field. This is one of the most important advantages of mutual funds
4. Flexibility to invest in Smaller Amounts
Among other benefits of Mutual Funds the most important benefit is its flexible nature. Investors need not put in a huge amount of money to invest in a Mutual Fund. Investment can be as per the cash flow position.
Benefits of PPF Investment
PPF investment is a safe one. It is due to minimal associated risks and more benefits. It is often considered a Pension Tool. You can withdraw the interest amount leaving the principal amount untouched.
1. Long Term Capital Appreciation
PPF mobilizes small savings from investors into long-term capital appreciation coupled with some interest in it. This is the government's objective in encouraging investors to go for a Public Provident Fund investment. Hence, it comes with a lock-in for 15 years and further extensions in blocks of 5 years. PPF investment is the best post-retirement fund to serve the financial requirements of old age.
2. Low Risk & Consistent Returns
Risk-averse investors should open a PPF investment account. Investors who want consistent returns as well as security of the principal amount. The sovereign guarantee makes it a safer investment plan. Invest the idle money or save a part of the income to accrue returns on the same through the safe investment of the PPF scheme.
3. Loans Against PPF
An additional benefit of a PPF investment is that it not only helps to attain future goals but also to fulfill short-term goals. It is also helpful in times of financial woes when you can request a loan against PPF. You can take loans against PPF between the 3rd and 6th years. The loan amount disbursed is a maximum of 25% of the second years investment amount. The second year’s investment is that of the year that precedes the loan application year. If you repay it in 36 months or by the 6th year, then after complete repayment you can go for a second loan in the 6th year.
4. Partial Withdrawal
You can partially withdraw money from PPF, other than loans when facing financial hardships. You can make one partial withdrawal from the 5th year onwards.
Conclusion
Mutual funds vs. PPFs Both are highly debatable due to their various drawbacks, benefits, features, tax advantages, maturity periods, and so on. Before selecting one of the two, it is critical to understand what each offers the investor, as well as the time period required to keep the invested amount until maturity. Aside from that, it is critical to determine whether or not the investment scheme provides a partial withdrawal facility. Before deciding, it is important to understand your personal needs, financial goals, and other factors. Expert advice can help you make a better decision.
Also read- What Is Investing And What Does It Mean? Learn About Several Investment Options.
