Public Provident Fund (PPF) and mutual funds (MFs) are distinct investment schemes that are often also considered as tax saving instruments. When it comes to choosing between the two, investors should carefully evaluate their risk appetite and financial goals first.

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While PPF provides a great buffer of stable returns during volatility, mutual funds offer an opportunity for higher returns.

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All you need to know about investing in direct plans of mutual funds

Let’s discuss the two in detail:

Liquidity

This is an important factor to consider while investing.

Fixed income products like PPF lack liquidity. It has a 15 year lock-in period. In contrast, barring ELSS, mutual funds can be liquidated with ease, suggests Abhinav Angirish, founder and managing director, Investonline.

Investment limits

Both PPF and mutual funds offer convenience when it comes to a minimum investment. But there is a cap on the maximum limit in PPF of Rs 1.50 lakh per year while there is no upper limit in mutual funds.

Returns

According to Angirish, historical data show that equities have beaten fixed income products by a wide margin.

"A SIP in equity mutual funds has delivered returns between 12 percent-15 percent, even debt funds have delivered returns between 7 percent-9 percent per year. The present rate of PPF returns stands at 7.90 percent. Thus, mutual funds offer a better advantage in terms of returns on investment," he explains.

Raghvendra Nath, managing director, Ladderup Wealth Management calls

mutual fund SIPs as the most preferred solution for long term wealth creation.

Also read: Here's a step-by-step guide on how to open NPS account online

"In short periods of time, equity remains highly volatile. However, if the investment horizon is more than 5-7 years, investors are bound to reap the benefits of compounding with a much-reduced volatility risk. While PPF can be a debt-oriented solution for the portfolio as it provides additional safety of being backed by the government but the long lock-in tenure for the investments poses a liquidity risk in the long term. Thus ideally, wealth creation can be done by way of SIPs into equity-oriented mutual funds while preservation of wealth can be done through PPF investments," he opines.

Disclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.

(Edited by : Jomy)

First Published:Dec 8, 2020 8:40 PM IST