Mutual Funds

Which is the Better Investment Instrument: Mutual Funds or PPF?

Save & Invest

You need to invest your money to make it grow. You can invest in many schemes to earn good returns and create a corpus for your future. On top of that, many of these saving schemes also offer you tax benefits, i.e., they help you save on income tax. Two of the most popular options to invest your funds are mutual funds and PPF. So, which one should you choose? Read on to learn more about their suitability for your financial profile.

About PPF

PPF, or Public Provident Fund, is a popular savings scheme in India. Many people invest their money in PPF because it is a risk-free option. To start saving in the PPF, you must open a PPF account with a bank or post office. Then you can invest up to Rs. 1.50 lakhs a year in PPF, either as a lump sum or in installments. As per Section 80C of the Income Tax (IT) Act (1961), you can claim a tax deduction of up to Rs. 1.50 lakhs for the money you invest in PPF. The minimum period for PPF is 15 years, but there is no maximum period.

You can extend your PPF account in blocks of five years for as long as you want. You need not make any new deposits during this period but can draw only partial amounts. The interest rate on PPF is set by the Indian government every year. There is also the option of taking a loan against your PPF from several banks for your urgent needs. The amount you receive after the PPF account is closed is tax-free.

About Mutual Funds

Mutual funds are savings plans that are managed by a fund manager from an asset management firm. Mutual funds collect money from several individuals and then invest it in various schemes, such as stocks, gold, bonds, and ETFs. There are many types of mutual funds that are available, and you can select any number of them. You can invest in mutual funds as a lump sum or as a systematic investment plan (SIP). You can also save on your taxes when you invest in ELSS, a special type of mutual fund that offers IT benefits under Sec. 80C up to Rs. 1.50 lakhs annually.

While ELSS funds have a lock-in period of three years, other mutual funds do not have a lock-in period. The return on mutual funds is based on the fund manager’s decisions, i.e., where to invest the money and for how long. While there are no fixed returns on mutual funds, they are usually better than other long-term saving schemes. If you have a time horizon of over five years, mutual funds can help you create a decent corpus for your retirement. After opening a Demat account with any fund house or service provider, you can invest in mutual funds.

Mutual Funds vs. PPF: Which is a better option for you?

This is a question that most people worry about when they decide to start investing and saving. PPF and mutual funds are two of the most well-known options most investors opt for. But which of these two is the best? Read on to learn more.

1. Returns:

PPF gives tax-free returns. This means the corpus you get after closing your PPF account does not have any tax. The interest rate on PPF is set by the government every year. Hence, it is a risk-free scheme that can give you good benefits if you invest with a long-term goal.

In the case of mutual funds, returns are based on the market situation. This is because fund managers invest money in various schemes and assets. While there are no fixed returns, mutual fund returns are usually higher than other schemes. This can help you beat inflation and create a corpus for your future.

2. Tax benefits

If you want to get IT benefits, you can invest in ELSS, a special mutual fund. This scheme has a lock-in period of three years and gives tax benefits under Section 80C. A three-year-long lock-in period is the shortest for any scheme offering IT benefits. So, you can save a lot on your IT deductions when you invest in ELSS.

When it comes to PPF, you can get tax benefits under the same section of the IT Act. Though the locking period for PPF is a minimum of 15 years, you can extend it in blocks of five years for as long as you want. This is, in fact, the longest lock-in period for any saving scheme.

3. Limit

There is no limit on how much you can invest in mutual funds. Even for ELSS, while the tax benefit limit is Rs. 1.50 lakhs, there is no cap on the maximum amount. As a result, you can invest as much as you want and still make a profit. This can be a good option if you have in-depth market knowledge.

However, in the case of PPF, the maximum amount you can invest is Rs. 1.50 lakhs in one year. There is no option for you to invest more, even if you want to. Hence, your chances of saving more are reduced.


PPF and mutual funds are two of the best saving schemes at present. They both have benefits, so you must decide based on your personal preference. Any scheme that can meet your needs and goals is the best option. To learn more about deciding on your future financials, visit Piramal Finance. They have many articles and blogs to help you acquire better finance skills.