There is no shortage of investment options in India, from the humble fixed deposit to stock market investments with varying risk-to-reward ratios.

In terms of long-term investments, mutual funds and Public Provident Funds (PPFs) are two of the most popular options. However, many individuals find it difficult to choose between mutual fund SIPs and PPFs.

In order to help give you some clarity on which investment option is best for you, we have put together a comprehensive article explaining the concept of SIP and PPF.

The systematic investment plan, also known as a SIP, is not an investment option, but rather a way to invest in mutual funds that is automated. When you opt for a SIP, a certain fixed sum of money is automatically debited from your bank account and is invested in a mutual fund at a frequency of your choice. As long as the tenure chosen is chosen, investments in the mutual fund will continue.

In general, most investors choose to invest in mutual funds on a monthly basis, which means making a monthly investment until the end of the chosen period. It is also possible to choose to invest in a SIP bi-monthly, quarterly, half-yearly, or annually, depending on your financial goals.

The advantages of investing in mutual funds through a SIP are numerous. Here are some of them.

• It is very flexible. You can choose the amount and the tenure of your investment, and you can withdraw it at any time.
• SIPs allow you to utilize rupee cost averaging, which lowers your investment costs and increases your returns.
• With mutual funds, you can generate much higher returns than with other traditional investments because they are market-linked.

Let’s quickly look at what mutual fund SIP and PPF are before we compare them.

Government-backed PPFs, or Public Provident Funds, allow investors to invest anywhere between Rs. 500 and Rs. 1.5 lakhs in a financial year. There is, however, a mandatory lock-in period of 15 years, which can be extended by 5 year blocks.

PPFs are locked in for 15 years, but partial withdrawals are permitted after the 7th year. The interest rate on PPF is determined by the government of India and is revised quarterly. At present, it is 7.1% per annum for Q4 of FY 2022–23.

Here are a few advantages of investing in the Public Provident Fund (PPF).

• PPFs are government-backed investments, so there is no risk of default.
• PPFs fall under the EEE (Exempt-Exempt-Exempt) category, so both the investments and the maturity amount are tax-free.
• As low as Rs. 500 can be invested in PPF. This makes it very accessible to almost everyone.

It’s not as simple as it sounds, but investing in a mutual fund via SIP may just be the best option if you’re a risk-averse investor who wants to generate higher returns. In addition, you will be able to enjoy high liquidity, no lock-in period, and no maximum investment limit.

The PPF may, however, be a good option for a conservative investor who wants to protect his or her capital rather than gain high returns. You can gain multiple tax benefits from investing in a Public Provident Fund, complete security, and a low minimum investment limit by doing so.

It is important to keep in mind, however, that Public Provident Funds require a minimum commitment of 15 years (due to the lock-in period), which is not true of SIPs, since they can be redeemed at any time.