When it comes to building long-term savings, you’ll likely come across two popular investment options Public Provident Fund (PPF) and Systematic Investment Plans (SIPs). Both allow you to invest small amounts regularly, offer tax benefits, and encourage financial discipline. But beyond that, they’re quite different.
While PPF is a government-backed savings scheme known for its safety and guaranteed returns, SIP is a way to invest in mutual funds where returns are market-linked and can vary based on fund performance. Deciding between the two depends on your financial goals, risk tolerance, and how much flexibility you want with your money.
You can explore tax-saving mutual funds before you lock in your decision—SIPs can offer returns and tax benefits too. Explore Section 80C-eligible funds
This article will help you break down the differences between PPF and SIP and answer the key questions you should ask before choosing one.
What is SIP?
A Systematic Investment Plan (SIP) is a simple and consistent way to invest in mutual funds. With a SIP, you commit to investing a fixed amount at regular intervals—usually monthly or quarterly. It’s like putting your investments on autopilot.
One of the key benefits of SIPs is something called rupee cost averaging. This means you buy more mutual fund units when prices are low and fewer when prices are high, which helps average out your overall cost per unit. Over time, this can help reduce the impact of market volatility.
SIPs are also super flexible. You can start with as little as Rs. 100 and increase your contributions when your income grows. Whether your goals are long-term like retirement or medium-term like buying a car or funding a child’s education SIPs can help you get there gradually.
Who should invest in SIP?
SIPs are a great fit for people who want to build wealth without needing to invest a large lump sum all at once. If you’re someone with steady income and long-term goals, SIPs allow you to invest small amounts regularly while giving you the benefit of professional fund management.
They work especially well for:
First-time investors who want a structured approach to investing
Individuals planning for future milestones like a wedding, home purchase, or education
Anyone who wants to reduce the emotional stress of trying to “time the market”
That said, SIPs are linked to market performance. So it’s important to understand your risk profile before getting started. If you’re comfortable with short-term market ups and downs in exchange for potentially higher returns in the long run, SIPs are worth considering.
Things to know before investing in SIP
Before you dive into a SIP, there are a few key terms and concepts you should understand:
Expense ratio: This is the annual fee charged by the mutual fund for managing your investment. A lower expense ratio means more of your money stays invested.
Exit load: Some funds charge a small fee if you withdraw your money before a certain period. Know this before you invest.
Investment horizon: SIPs work best when you stay invested for a longer period typically 5 years or more. The longer you stay, the more compounding works in your favour.
Step-up option: Some SIPs allow you to automatically increase your investment amount every year great if you expect your income to rise over time.
Align your SIPs with clear goals, such as retirement planning, buying a home, or building a corpus for your children. This helps you stay focused and avoid impulsive withdrawals during market dips.
What is PPF?
The Public Provident Fund (PPF) is a long-term savings scheme offered by the Government of India. It’s designed for people who want to grow their money safely over time—without worrying about market ups and downs.
When you invest in PPF, you earn a fixed interest rate that the government declares every quarter. Right now, it’s around 7.1% per annum. The biggest advantage? The money you invest, the interest you earn, and the maturity amount are all tax-free. This makes PPF one of the most tax-efficient investments out there.
PPF has a lock-in period of 15 years, but you can make partial withdrawals from the 7th year onwards. After 15 years, you can extend it in 5-year blocks if you wish to continue saving.
Whether you’re saving for retirement or simply looking for a safe place to park your money, PPF is a great option for conservative investors.
Who should invest in PPF?
PPF is best suited for individuals who value stability, safety, and guaranteed returns. It’s ideal for:
People planning for retirement who want tax-free income later in life
Investors who don’t want to take risks with their savings
Anyone looking for a tax-saving option under Section 80C
Parents planning long-term for their child’s future needs
Salaried individuals and self-employed professionals who want consistent, low-risk returns
Since PPF is backed by the Government of India, you don’t have to worry about losing your money due to market fluctuations. The returns might not be as high as mutual funds, but the peace of mind it offers makes up for it—especially if you’re a cautious investor.
Things to know before investing in PPF
If you're thinking about investing in PPF, here are a few key points to keep in mind:
Lock-in Period: Your money stays locked in for 15 years. You can’t close the account early except under special conditions like critical illness or death.
Minimum and Maximum Limits: You must invest at least Rs. 500 in a year, and you can invest up to Rs. 1.5 lakh annually. Missing even one year’s deposit can make the account inactive.
Interest Rate: The interest rate is fixed by the government and may change every quarter. It’s not linked to market performance.
Tax Benefits: Contributions qualify for tax deductions under Section 80C. Plus, the interest and maturity amounts are completely tax-free a rare combination!
Nomination Facility: You can nominate someone to receive the PPF proceeds in case something happens to you.
Withdrawal Rules: Partial withdrawals are allowed only from the 7th year. The withdrawal amount is capped based on specific rules.
Extension Option: After maturity, you can choose to extend your PPF account in blocks of 5 years—either with or without further contributions.
If you are looking for long-term savings with zero risk and assured tax-free growth, PPF is one of the most dependable options in India.
Difference between SIP and PPF
Let’s break down the difference between SIP and PPF in a simple table so you can compare them easily:
Parameters |
PPF |
SIP |
Returns |
Fixed rate (7.1% as of Q2 FY 2023-24) |
Market-linked returns (can range from 10% to 15%) |
Investment Amount |
₹500 minimum, ₹1.5 lakh maximum yearly |
₹500/month minimum, no maximum limit |
Investment Tenure |
15 years (can extend in 5-year blocks) |
Flexible – from 6 months to 20+ years |
Lock-in Period |
15 years |
None (unless ELSS with 3-year lock-in) |
Risk |
Risk-free (government-backed) |
Market risk involved |
Tax Benefits |
EEE (Tax-free investment, interest, maturity) |
Tax deduction under Section 80C for ELSS only |
Liquidity |
Low – partial withdrawals from 7th year |
High – can withdraw anytime (exit load may apply) |
In short, PPF is safer, while SIPs offer higher returns if you can handle some risk. Your choice depends on your financial goals and how comfortable you are with market fluctuations.
SIP or PPF : Which is better?
There’s no one-size-fits-all answer. Whether SIP or PPF is better really comes down to your needs, preferences, and risk tolerance. Here’s how to think about it:
If you want guaranteed returns and capital protection, PPF is a better fit. It’s great for retirement planning or if you’re a low-risk investor.
If you're aiming for higher returns and long-term wealth creation, SIPs in mutual funds can offer more growth—especially if you’re starting early and have a longer horizon.
If tax savings are your priority, both offer benefits. PPF provides EEE tax treatment, while SIPs through ELSS funds qualify for 80C deduction.
SIPs win on flexibility. You can start, pause, or increase your investments easily, while PPF is more rigid.
Ultimately, it’s not always about choosing one over the other—you can invest in both. PPF gives you safety and stability, while SIPs offer growth and flexibility.
If you are looking for returns that grow with your goals, SIPs may offer better flexibility, access, and long-term rewards than PPF. Start investing or SIP with just Rs. 100!
Do you want flexibility?
If you want the option to stop or withdraw your investment without any strict timelines, SIPs are much more flexible. You can pause or cancel a SIP anytime, redeem your investment partially or fully, and even change your fund scheme as needed.
In contrast, PPF has a strict 15-year lock-in. You can make partial withdrawals only from the 7th year, and even then, it’s limited. You’re allowed to extend it after 15 years in 5-year blocks, but closing it prematurely is usually not allowed.
Both SIP and PPF support small, regular contributions—so you don’t need a lump sum upfront. But if you’re someone who likes having control over your money and the option to make changes as your life evolves, SIP offers much more freedom.
Do you prioritise safety and want secure returns?
If safety is your top concern, the Public Provident Fund (PPF) is hard to beat. Since it’s backed by the Government of India, your capital is completely secure, and you earn a fixed interest rate every year. There's zero market risk involved.
On the other hand, SIPs involve investing in mutual funds, which are subject to market ups and downs. That means your returns can fluctuate based on how the market performs. However, SIPs are professionally managed by experienced fund managers, which can help manage the risk more effectively over time.
And here’s the thing: the longer you stay invested in SIPs, the more you can ride out the market volatility and benefit from higher long-term returns. So while SIPs aren’t as “safe” as PPF, they do have the potential to grow your money significantly if you’re in it for the long run.
Is earning a high rate of interest crucial?
When it comes to returns, this is where SIPs can take the lead.
PPF offers a fixed interest rate of 7.1% p.a., as of Q2 FY 2023-24. This is stable and predictable, which is great for conservative investors. But it may not beat inflation in the long run, especially if your goals include wealth creation.
In contrast, SIPs—particularly those in equity mutual funds—have historically delivered average returns between 12% and 15%, and in favourable market conditions, even up to 20% or more. That’s a big difference when you look at your investment over 10 or 20 years.
So if maximising returns is your goal and you’re okay with some ups and downs along the way, SIPs are a powerful tool to grow your wealth. Start investing just Rs. 100!
Do you want high liquidity from your investment?
With PPF, liquidity is limited. You can only make partial withdrawals after the 7th year, and even then, only once per year with a cap—either 50% of the balance at the end of the 4th year or the previous year, whichever is lower.
SIPs, on the other hand, offer much higher liquidity. You can withdraw your money anytime (except in ELSS mutual funds, which have a 3-year lock-in). The only thing to watch out for is a small exit load (fee) or short-term capital gains tax if you withdraw early.
So, if having quick and easy access to your money is a priority, SIPs give you the upper hand. You’re in control and can tap into your investment whenever the need arises.
How much money do you want to invest?
One of the first things to figure out is how much you’re comfortable investing.
Both PPF and SIP let you start small with just Rs. 100. But there are some important differences when it comes to contribution limits.
For PPF, you can invest a maximum of Rs. 1.5 lakh per year, and it’s mandatory to make at least one contribution annually to keep your account active. This makes it a great tool for disciplined, long-term savings—but with a cap.
In contrast, SIPs give you much more freedom. There’s no upper limit on how much you can invest, though you may be restricted by a Rs. 25,000/day per fund cap due to SEBI guidelines. You can also start, pause, or change your SIP amount depending on your goals or life changes, making SIPs more flexible for growing wealth at your own pace.
SIP or PPF: which is better?
Still unsure about which option suits you best? Let’s recap based on your preferences:
Flexibility: SIP wins. You can stop and redeem anytime. PPF has a 15-year lock-in.
Safety: PPF is government-backed, so it’s safer. SIPs carry market risk, but also offer higher potential returns.
Returns: SIPs typically offer higher long-term returns. PPF offers stable but lower fixed returns.
Liquidity: SIPs are more liquid. PPF allows limited withdrawals after 7 years.
Investment cap: PPF has a limit of Rs. 1.5 lakh/year. SIPs have no such cap.
So, if you’re looking for stable, guaranteed returns and tax-saving with zero risk, PPF is a solid choice. But if you want to grow your wealth, beat inflation, and are okay with a bit of risk, then SIPs are a better long-term bet.
Still confused? Use the Bajaj Finserv SIP calculator to estimate your returns, compare outcomes, and choose a plan that fits your goals.
Conclusion
Choosing between SIPs and PPFs really comes down to your financial goals, time horizon, and risk appetite.
If you prefer security and tax-free guaranteed returns, PPF is ideal especially for retirement savings. But if your goal is wealth creation, and you’re comfortable with market movements, SIPs offer greater growth potential and flexibility.
You do not always have to pick one over the other. Many investors use both, with PPF for stability and SIPs for growth. Whichever you choose, the key is to start early and stay consistent. Your future self will thank you for it.
