Mutual Fund vs PPF

The Public Provident Fund (PPF) is a government-backed savings scheme that offers fixed, low-risk returns and a 15-year lock-in period. It’s best suited for conservative investors who prioritise capital safety, stability, and tax benefits under Section 80C. Mutual funds, on the other hand, are market-linked investment options that pool money from multiple investors to invest in diversified assets like equities, debt, or hybrids. They provide the potential for higher returns and greater flexibility but also carry market risks and short-term volatility.

If you are a young professional with high risk-taking potential, an equity mutual fund might be more attractive than a PPF (Public Provident Fund). However, for a person over 50 years of age, the risk-taking potential is usually low. In that case, a more secure financial instrument and assured return is more preferable. For such a person, a PPF account is preferable to a mutual fund scheme.

In the mutual funds vs PPF battle, it is really difficult to give a generalised answer for all. This is because many factors are there to take into account. Let’s check the top five factors that you should take into account to decide which one is better between two, mutual fund or PPF.

Also read: How does mutual funds work?

What is PPF?

The Public Provident Fund (PPF) is a long-term, government-backed savings scheme designed to promote disciplined investing among individuals. It offers guaranteed, fixed returns that are reviewed quarterly by the Ministry of Finance. With a 15-year lock-in period, PPF provides safety and stability, making it suitable for risk-averse investors. Contributions up to Rs. 1.5 lakh per year qualify for tax deductions under Section 80C of the Income Tax Act. Additionally, the interest earned and maturity proceeds are completely tax-free, making it one of the most tax-efficient savings options for long-term wealth creation and retirement planning.

What is a Mutual Fund?

A mutual fund is an investment vehicle that pools money from multiple investors and invests it across a diversified portfolio of assets, such as equities, bonds, or hybrid instruments. Managed by professional fund managers, mutual funds aim to generate returns that align with the fund’s objective — be it growth, income, or stability. Investors can start with small amounts via Systematic Investment Plans (SIPs) and choose schemes based on their goals and risk appetite. While mutual funds offer flexibility and higher return potential compared to traditional savings schemes, they also carry varying degrees of market risk.

Mutual fund vs PPF

Tax Treatment Comparison

PPF vs mutual fund: Is a mutual fund better than a PPF?

To decide whether a mutual fund is better than a PPF for you, it is important to consider 3 main factors. So, let’s start the comparison of PPF vs mutual funds based on these factors.

1. Rationale of investment

To decide whether mutual funds are better than PPFs, the rationale of your investment plays a pivotal role.

• Mutual fund:
  Mutual funds can serve you various purposes according to your goals.
  • Short-Term Goal: Investment in a liquid fund or short-term mutual fund scheme can help you fund your vacation next year.
  • Medium-Term Goal: A mutual fund investment for the medium term can fund your children’s education.
  • Long-Term Goal: If you are planning for your retirement goals, investing in long-term mutual funds can provide you with returns higher than fixed-income assets.

• PPF:
  PPF gives you assured returns with a yearly compounding facility. So, you can create a large corpus over the long run (15 years).
  

Also read: How does mutual funds work?

2. Risk of investment

The risk profile varies from person to person. It changes according to age and other factors. To make a decision on the mutual funds vs PPF choice, the risk of investment plays an important role.

• Mutual fund:
  • An equity mutual fund can provide you with high returns but the risk of investment is high. It is best for investors, who have an appetite for high returns. The risk of losing your capital investment is high but the prospect of making higher returns is also very high.
  • Debt mutual funds have a low risk of investment but provide low returns, closer to the assured fixed-income assets. If you want to maintain the value of your investment, debt funds can help. The risk of losing your capital investment is low but not nil.
  • Hybrid mutual funds lower your risk of investment but also provide you with a decent return. The fund managers usually invest in both equity and debt instruments in varying proportions to strike a balance between high return and avoid loss (i.e. maintain the value of the fund).
• PPF:
  Public Provident Fund doesn’t have any investment risk because it provides you with assured returns. The central government decides the annual interest rate. However, the rate is subject to revision every three months. No matter what the rate is, you will always get an assured return with a compounding interest rate facility every year. You’ll never make a loss in your capital investment by investing in PPF.
  

Also read: What is a debt mutual fund?

3. Annual return

The rate of return plays an important role in deciding between a mutual fund and a PPF account.

• Mutual fund: 
  The return generated by different mutual fund schemes varies because of the following:
  • Assets (equity, debt, or hybrid) in which investment has been done by the fund manager
  • The proportion in which the fund manager has allocated the funds in different assets.

Generally speaking, an equity mutual fund scheme can provide you with an average annual return of around 10-15%. A liquid fund usually gives an annual return of 7-9%. These figures are average returns only and are not assured returns. Mutual funds are market-based financial instruments and therefore don’t give you any guarantee on the performance of returns.

• PPF:
  For Q1 of FY 2024-25, the Indian government has set the interest rate at 7.1% p.a. The rate is subject to change every three months. You can invest anything from Rs. 500 to Rs. 1,50,000 every year.
  Historically, the PPF interest rate has varied from as low as 4.8% (1968) to 12% (1986-87 to 14.01.2000). The current 7.1% p.a. Is the lowest rate since 1977-78.
  However, the best part of PPF is that it provides you with a compounding facility. It helps your corpus harness the benefits of yearly compounding during your 15-year investment journey.

Also read: How to choose mutual funds?

Key takeaways

• PPF (Public Provident Fund) is a government-backed, long-term savings scheme that provides safe and guaranteed returns, making it ideal for risk-averse investors.
• Mutual Funds (MFs) pool money from multiple investors to invest in diversified assets such as equities, bonds, or hybrids, and are professionally managed by Asset Management Companies (AMCs).
• PPF offers fixed returns — currently around 7.1% (FY 2025–26) — ensuring stability and capital protection.
• Mutual Funds provide market-linked returns with potential for higher gains but come with varying levels of risk.
• While PPF ensures secure savings, guaranteed income, and tax deductions, Mutual Funds offer flexibility, diversification, liquidity, and opportunities for long-term wealth creation.

Final words

When it comes to PPF vs mutual fund comparison, the tax benefit is one of the major advantages of both. PPF provides you with a tax exemption of up to Rs. 1.5 lakh under the Income Tax Act’s Section 80C. When it comes to mutual funds, every scheme doesn’t provide you with tax benefits. Only ELSS (Equity-Linked Savings Scheme) mutual funds provide you with a tax exemption of up to Rs. 1.5 lakh under Section 80C of the IT Act.

In the mutual funds vs PPF battle, does a mutual fund seem more lucrative to you than a PPF? Do you want to invest in a mutual fund scheme in addition to investing in PPF for a better balance of your investment portfolio?

If your answer is yes but you don’t know which MF scheme to choose, check the Bajaj Finserv Mutual Fund Platform. It provides you with 1000+ mutual fund schemes to choose from. Select multiple schemes from the list, compare mutual funds, and calculate probable income or corpus size in both the SIP Calculator and the Lumpsum Calculator before investing. What are you waiting for? Invest now.

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