SIP Vs PPF - Which is Best for Long Term Investment Plan?

SIP Vs PPF – Which is Best?

Updated on 19 Mar, 2024

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Systematic Investment Plans (SIPs) and Public Provident Fund (PPF) are long-term investment options. Though they belong to different asset categories both of them are suitable to fulfil your long-term financial goals. However, each of these investments involves different levels of risk and offers varying returns. Therefore, comparing SIP Vs PPF allows you to decide the one that best addresses your long-term financial goals.

Compare SIP Vs PPF

Which is better, SIP or PPF? Following are the main differences when you compare SIP and PPF:

Particulars	SIP	PPF
Product Structure	Small investment scheme suitable for long-term goals.	Government-backed scheme that offers guaranteed returns in the long term.
Returns on Investment	Market Linked	Guranteed returns
Investment Objective	SIP is suitable for long-term investments and wealth accumulation.	PPF is a long-term investment with a minimum period of 15 years or more. It is suitable for goals such as a child’s education and life after retirement.
Tenure of Investment	Flexible tenure, suitable for long term.	15 years, and further extend for 5 years.
Liquidity Offered	Highly liquid	Less liquid
Level of Risk	High risk	Low risk
Lock-in Period	SIP does not have a lock-in period. Only ELSS funds have a 3-year lock-in period.	15 years

PPF Vs SIP: In Detail

Product Structure

SIPs allow you to invest in mutual funds. Therefore, you can invest small amounts of money on a regular basis through SIP. You do not need to invest a large lump sum in one go. Mutual funds are issued on a regular basis against your investment. The number of MF units depends on the Net Asset Value (NAV), i.e. the prevailing price of the fund. Change in the Net Asset Value (NAV) impacts the number of MF units. Hence, when the NAV is low, you receive more units, but when the NAV is high, the units are less.

PPF allows you to invest a maximum amount of Rs 1.5 lakh. You can make the investment amount deposit as a yearly lump sum or via 12 installments in a year. PPF investment term is 15 years. You receive the principal amount along with the accrued interest as returns.

Return on Investment

Returns on SIP investments are linked to the equity market. Market performance and asset allocation strategy of your investment scheme define its returns. On the other hand, you receive annual interest for your PPF investments. The lowest account balance between the 5th and last date of each month is considered for interest calculation. PPF investment returns are pre-determined and fixed. The rate of interest for PPF investments may change during the investment period in case of changes in government policy. Calculate your returns using Scripbox’s Mutual Fund SIP Calculator.

Investment Objective

SIP is suitable for long-term investments and wealth accumulation. Individuals can use it to invest regularly for their long-term goals. Primarily advisable for goals like higher education. They are a safe investment option.

PPF is a long-term investment with a minimum period of 15 years or more. Therefore, you must consider it for goals you wish to achieve after 15-20 years. It is suitable for goals such as a child’s education and your life after retirement. Tax BenefitTax implications of SIPs depend on the rules governing taxation on mutual fund investments. All returns from your PPF investment including the interest, are tax-free under Section 80C. You also get a tax deduction on your PPF deposits up to Rs. 1.50 lakh.

Tenure of Investment

The time period of SIP investments is flexible and you must choose it as per your goals. On the other hand, PPF has a minimum tenure of 15 years. You can extend your investment in slots of 5 years upon maturity.

Liquidity

SIP is highly liquid so it allows you to discontinue your investment at any time. You can redeem your investment in 1-2 working days against a penalty. On the other hand, PPF is less liquid. You can only withdraw the investment amount after the 7th year from the date of opening your PPF account.

Level of Risk

SIPs are prone to a higher level of risk as they are influenced by equity market performance. PPF offers guaranteed returns and is, therefore, a safer investment option. The rate of returns on PPF investments is predetermined and it may be changed by the government only.

Lock-in Period

SIP does not have a lock-in period. You can stop the investment at any time and withdraw the money when you need it. The lock-in period for PPF investments is 15 years. You can withdraw the deposited amount only after completing 7 years from the date of investment

What is SIP?

How Long is Long Term Plans?

Who Should Invest in SIP?

SIP makes investing in mutual funds easier by helping you set aside monthly contributions. Therefore, investors with a regular income source like salary can use SIP to invest regularly with discipline. It is helpful for those interested in achieving mid to long-term goals such as higher education, marriage, etc.

Here are the best mutual funds for SIP in 2024

Who Should Invest in PPF?

Comparing SIP vs PPF, PPF investments are suitable for investors planning for their retirement. It helps them accumulate wealth over time and lead a comfortable life post-retirement. Therefore, investors can choose to invest regularly or a lump-sum amount. The lock-in period of PPF is long hence the funds are useful for long-term investments. You can invest in PPF for goals such as children’s education or marriage.