Provident Fund(PF), EPF(Employee Provident Fund), NSC( National Saving Scheme) and SCSS(Senior Citizens Savings Scheme) are the most popular saving instruments with guaranteed returns. However, there is a lot of confusions as to which option is better- PPF vs Mutual Funds

  1. A senior citizen having a huge corpus (retirement lump sum) to either invest in PPF or go for Debt Funds.
  2. ELSS vs PPF- both enjoy the benefits of 80C- Which on to choose?
  3. PPF vs Equity Oriented Mutual Funds as an Investment Option for capital appreciation

Before that, here are some features of PPF and Mutual Funds as an investment option

Public Provident Fund

Provident Fund is a long- term savings investment options established by the Govt. of India in 1968. It offers tax benefits on withdrawal as well as on contributions. It inculcates the habit of savings amongst Indian citizens for their life after retirement. The scheme is backed by the Govt. of India and there are no chances of capital erosion. It also gives guaranteed returns which are related to G-secs. 

Update: The present PPF rate is 7.6%.

Some Salient Features of PPF

  • Eligibility– The applicant must be an Indian resident.
  • Investment- Minimum-500 per annum; Maximum- 1.5 lakhs.
  • Returns- Govt announces interest rate every quarter based on G-secs.
  • Lock-in is 15 years and can be extended to another 5 yrs.
  • Liquidity– This part is somewhat tricky, although you cannot redeem the amount invested. However, you can avail loan against the amount invested which is subject to some upper limit and after some years. For example- loans can be availed after 3 yrs. of initiating the PPF with a maximum of 25% of the balance after the 1st Financial year.
  • Tax implications– PPF enjoys E-E-E status(Exempt-Exempt-Exempt) wherein the contribution, interest, and withdrawals are tax exempted. PPF also enjoys the benefits of 80C wherein the contribution (up to 1.5 lakhs) is deducted from your annual income to arrive at your taxable income which sometimes helps in reducing your slab rate.

PPF Interest Rates

Mutual Funds

A mutual fund is a collection of stocks or bonds that a professional Fund Manager buys on your behalf. He creates a portfolio of securities as per the category in which the fund belongs like equity oriented mutual funds invest majorly in equities. People invest in mutual funds as they don’t have the expertise, time and energy to generate above average returns. There are three broad categories of Mutual Funds. 

  • Equity – Invest in stocks to earn high returns. These bear high-risk also.
  • Debt – These are low-risk investments. Returns are typically 2-3% higher than FD, with full liquidity.
  • Balanced – these invest a portion in equity and rest in debt. Therefore they bear moderate risk and give moderate returns.

Some Salient Features of Mutual Funds

  • Eligibility– Anyone having a bank account and PAN card invest in Mutual Funds.
  • Investment– There is no such limit of minimum investment. One scheme offers SIP of Rs 100. Also, there are few good schemes with Rs 500
  • Returns– Mutual Funds returns are market linked. The following table looks at average 3-year returns as per different categories.
  • Lock-in- Overall, mutual funds do not have a lock-in period. However, ELSS (Equity Linked Savings Scheme) similar to PPF,  have a lock-in period of 3 years.
  • Liquidity– Most mutual funds are 100% liquid. Although close-ended schemes have some liquidity issues.
  • Tax implications-Equity oriented mutual funds (>65%) are tax-free if held for more than one year. 

PPF vs Debt Mutual Funds

Should I invest in PPF or mutual funds? – this is a very common question. Debt Funds invest in Govt. Securities(G-Sec), corporate bonds, PSU Bonds and other Debt Securities which help in generating secured returns. There are different sub-categories in Debt Funds as well the risk and time horizon of investment.

The Following portfolio is suitable for generating monthly income post retirement by investing your retirement corpus and starting a Systematic Withdrawl Plan.

Check out this portfolio


ELSS (Equity Linked Saving Scheme), another category in mutual funds is similar to PPF in terms of tax implications(both enjoys the benefit of 80C). However, the average returns in ELSS in much higher (3 years returns-12.65%) when compared with PPF.

Best ELSS schemes

PPF vs Equity Oriented Mutual Funds

Equity Oriented Mutual Funds allocates more than 65% of their total Asset Under Management to equities falls under this category. Under this, there are different sub-categories like Large-Cap, Mid-Cap, Small-Cap and Multi-Cap.

Wealth Creation Portfolio


PPF and Mutual Funds are different investment option altogether. An individual can invest in both options as these have different features. PPF gives guaranteed returns while mutual funds returns are market-linked. An individual should first gauge his/her risk-taking ability and then invest in different investment options available in the market.


Disclaimer- The views expressed here are of that author and may not be the same as that of Groww. 

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