Difference Between SIP and PPF
Introduction
Mr Kunal was watering his plants when Mr Rajesh tapped on his shoulder. “Where is your mind? The water is overflowing,” he reminded him. Mr Kunal heavily signed, “I was wondering what if you could grow money just like plants, haha!” They both laughed; as they calmed down, Mr Kunal smiled, “Who says we can’t grow money like plants?” to which Mr Kunal’s face twisted, “Grow money like plants?” he asked.
“Yes, my friend”, Mr Rajesh raised the corner of his lips, he continued, “You can invest in a mutual fund through SIP that offers 15%-18% returns on your investment, as the market grows, your money grows! Or my friend, you can invest in a PPF government-backed scheme that offers 7.8% returns guaranteed without market risk.”
Mr Kunal’s face was frozen; he managed to speak somehow, “Really?”
To which Mr Rajesh snatched the water can from his friend’s hand and smirked, “Who said you couldn’t grow money like plants. What it needs is little investment and time, just like a plant needs soil and water.”
“Now I can grow my money like a plant, haha!”
What is Systematic Investment Plan (SIP)?
SIP or Systematic Investment Plan is an investment in mutual funds at pre-defined intervals. It helps you to grow your assets over the years with profit. The sip allows you to invest in a mutual fund as you can enter the market with low risks. During the market fluctuation, your asset would not get tarnished as it has a lower impact. Investing in a mutual fund through sip will help you achieve your long-term goal. You can invest weekly, monthly, yearly as pre-defined intervals you set according to your financial conditions.
Benefit of SIP
- You can get the benefit of compounding. Compounding is when your return on your investment starts earning returns. Your money will grow over time with a profit. It is a very convenient method of investing as you can save for your long-term goal.
- The sip can get cancelled anytime in a situation if you need quick money. It provides safety of your investment in the needed time.
- For investment in a mutual fund through the sip, you don’t need a large sum of money. You can start with ₹500 only. Over the period, the investment on pre-defined intervals will gain profit. It is lighter on a wallet.
- The investment in a mutual fund through sip helps to stay focused. As your money will be safe in the market fluctuations.
How to invest in SIP
- Select the mutual fund scheme you will invest in through sip.
- Fill the form online or offline offered by the bank. Also, add the documents which the may bank need.
- You have to fill another sip form, where you will instruct the bank to allow regular debit from the account. This process will take 7 to 30 days for completing.
- The mutual fund allows to set up sip from six months to no limited period.
- You can cancel it anytime. And take out the money when needed.
What is Public Provident Fund (PPF)?
Public Provident Fund, i.e., PPF, is the investment scheme introduced in 1968. It allows you to save money in the form of small investments. This scheme helps to gain profits through return on investment over the period. You can invest cash while saving on annual taxes. You can save money for retirement corpus safely and can earn returns guaranteed.
The benefit of PPF
- Investment in PPF allows you to save on income tax annually while saving for your retirement plan. The income tax deduction was introduced in 1961. It reduces the income tax amount on saved money to gain more returns.
- The PPF investment is free from market risks. Even if the market fluctuates, your invested money will be no harm.
- You can take a loan against your PPF account. This scheme permits you to apply for a loan against PPF as your security.
How to invest in PPF
- Fill out the form online or offline. Enter the personal detail as a resident, DOB, Education, CIF, PAN details, etc.
- Enter the branch code of your bank account.
- Enter nominee details
- The Bank will generate a reference number that will allow you to open a PPF account.
The Major Difference Between SIP and PPF
The difference between SIP and PPF is mentioned below. That will help you to understand the critical points of SIP vs PPF
| SIP | PPF | |
| Investment | SIP is the investment in mutual funds to invest for a short or long period. | PPF is a government scheme to invest money for a longer period. |
| Time | The lock in period is of 3 years | You can get investment up to 15 years |
| Returns | Based on the market returns, sip gives 15-18% higher than PPF | PPF offers a 7.9% gain on returns |
| Risk | Investing in a mutual fund through SIP can be risky. As it is related to the market. | Investing in PPF has no risks as it is free from market fluctuations |
| Liquidity | You can withdraw your money at any time. You can take your money back without explaining the reason | for cancelling.
The funds cannot be withdrawn before 7 years. You need to provide a strong sense as the investment is locked for a set of periods. |
Conclusion
This article had mentioned all the key points you need before investing money in a mutual fund through SIP or PPF. They both had good plans according to the needs of a person. You can read SIP vs PPF for a better comparison for your investment plan so that you can choose the best investment plan for yourself.
FAQs:
How can I save for my retirement plan with tax benefits?
Public Provident fund (PPF) is a government-backed service that offers tax deductions up to 1.5 lakh. The ppf is tax exempted, which allows you to save money for your retirement plan while saving on annual tax. This scheme provides you with guaranteed returns as it is the best for your retirement plan, without worrying about tax payments.
Can I withdraw my money after investing in SIP?
The sip scheme has a locked-in period for 3 years under which you cannot withdraw your money. However, after this fixed period, you are allowed to withdraw it without giving any need to provide a reason necessarily. If you invest in PPF, you can't withdraw for 15 years, which means your money is locked. In that aspect, SIP is better than PPF.
