How are 7.1% PPF returns better than 12% returns of mutual funds in India?

While researching investment options in India, a person frequently finds himself comparing the oldest investments related to PPF with the latest investment options that include mutual funds. While mutual fund, sometimes, delivers much better returns, knowing why PPF can be better suited for specific investors helps the investor make a better financial choice.

1. Absolute Safety: There is complete government guarantee by the Government of India, and nothing can be jeopardized in capital. PPF is, hence, a safest investment compared with the volatility faced in mutual fund investments, subject to market risk and may depreciate highly.

2. Tax Efficiency: The most significant advantage of PPF is its EEE (Exempt-Exempt-Exempt) tax status. Investments in PPF are eligible for tax deductions under Section 80C up to Rs 1.50 lac annually, and the returns and maturity benefits are exempt from tax. In contrast, mutual funds, particularly equity-linked savings schemes (ELSS), offer tax benefits on the investment but not on the returns or withdrawals.

3. Certainty and Predictability: PPF provides predictable returns set by the government quarterly. The fixed returns offer certainty in financial planning, a feature highly appealing to investors who prefer to avoid uncertainty and risk in their investment portfolios.

4. Long-term growth: The long lock-in period of 15 years for PPF may seem restrictive, but it helps in disciplined, long-term savings and benefits from the power of compound interest, making it ideal for goals like retirement planning or funding higher education.

5. Suitable for Conservative Investors: PPF is best suited for conservative investors, especially those nearing retirement, who are looking for secure and reliable investment options without the stress of potential market dips affecting their investment.

Indeed, the attractions to higher returns on mutual funds cannot be ignored; however, security, tax benefit, and stability aspects of PPF make it one of the best bets for those concerned with safety and predictability while investing.

While making an investment decision, financial goals, tolerance for risk, and the length of investment may be taken into consideration to invest in the product that suits a particular individual the most, I assume...

This article is only for educational purpose, you may invest basis your risk appetite, financial objectives and any other relevant parameters.