SIP Vs PPF: Comparison, Returns & Which is Better

Understand your investment profile and gauge the differences between a public provident fund and a systematic investment plan.
3 mins
08 Feb 2024

PPF vs. SIP: When you are considering making an investment and are weighing the various options available to you, you are sure to come across instruments such as PPF (Public Provident Fund) and SIP (Systematic Investment Plan). While both PPF and SIP require recurring contributions and offer tax benefits, a host of factors differentiate the two. Knowing the similarities and differences between PPF and SIP will help you decide which one to pick.

Take a look at some questions that you must answer to understand which instrument you should choose.

What is SIP?

Systematic Investment Plan (SIP) is a disciplined and flexible investment strategy that allows individuals to invest a fixed amount regularly in mutual funds. Investors can choose the frequency (monthly, quarterly, etc.) and the amount they want to invest. SIP promotes rupee cost averaging, as investors buy more units when prices are lower and fewer units when prices are higher. It is a convenient way for individuals to enter the equity market gradually, reducing the impact of market volatility.

Who should invest in SIP?

Investing in SIP can yield additional returns, aiding in long-term wealth accumulation. It's particularly beneficial for individuals with medium to long-term financial goals, such as planning for marriage or children's education. SIPs are suitable for those seeking professional management with limited funds. However, understanding the risk profile of Mutual Funds is crucial before investing.

Things to know before investing in SIP

Before investing, grasp key terms like Expense Ratio and Exit Load. Review any increases in regular investments after a specific period to understand the investment better. Clearly define your investment horizon, risk profile, and investment objectives to align your SIP investments with your financial goals.

What is PPF?

Public Provident Fund (PPF) is a long-term savings and investment instrument backed by the Indian government. It offers a fixed interest rate and tax benefits. Individuals can open a PPF account with a minimum deposit and contribute annually. The investment has a lock-in period of 15 years, but partial withdrawals are allowed after the sixth year. PPF is known for its safety, tax-free returns, and suitability for long-term goals like retirement planning and wealth accumulation.

Who should invest in PPF?

Public Provident Fund (PPF) is suitable for individuals looking for safe and long-term investment options. It is particularly beneficial for:

  • Individuals seeking stable and secure returns: PPF offers guaranteed returns and is backed by the Government of India, making it a safe investment avenue.
  • Those planning for retirement: PPF provides a reliable source of income during retirement years, as it offers tax-free withdrawals and accumulates savings over a 15-year period.
  • Investors looking for tax benefits: Contributions made towards PPF are eligible for tax deductions under Section 80C of the Income Tax Act, making it an attractive option for tax planning.
  • Individuals with a low to moderate risk tolerance: PPF carries minimal risk compared to market-linked investments, making it suitable for conservative investors seeking steady growth.

Things to know before investing in PPF

Before investing in PPF, it is essential to consider the following factors:

  • Lock-in period: PPF has a lock-in period of 15 years, during which premature withdrawals are generally not permitted except under specific circumstances.
  • Tax benefits: Contributions made towards PPF qualify for tax deductions under Section 80C of the Income Tax Act, with tax-free interest and withdrawals at maturity.
  • Interest rate: The interest rate on PPF is set by the government and is subject to change periodically. Investors should be aware of prevailing interest rates before opening a PPF account.
  • Contribution limits: The minimum and maximum contribution limits for PPF accounts are determined by the government and may vary from year to year.
  • Flexibility: PPF offers limited flexibility in terms of withdrawals and premature closures, making it more suitable for long-term financial goals.
  • Nomination facility: PPF accounts allow investors to nominate beneficiaries to receive the proceeds in case of the investor's demise.
  • Risk-free nature: PPF is considered a risk-free investment avenue as it is backed by the Government of India, offering investors peace of mind regarding the safety of their savings.

Difference Between SIP and PPF





7.1% (Q2 of FY 2023-24)

*Market linked

Investment Amount

Minimum: Rs. 500 and Maximum: Rs. 1.5 lakh p.a

Minimum Rs.500 per month and No max. limit

Investment Tenure

Minimum investment tenure is 15 years and Extendable in blocks of 5 years

Can be as low as 6 months or as high as 20 years

Lock-in Period

15 years

No lock-in period

Investment Risk

It is completely secure since it is government-backed scheme

Risks involved since SIP is market-linked investment

Tax Benefits

EEE or Exempt Exempt Exempt category of tax

Some mutual funds like ELSS funds are eligible for tax deduction under Section 80C


Quite Low

Quite High


SIP or PPF Which is Better?

Take a look at some questions that you must answer to understand which instrument you should choose.

  • Do you want flexibility?
    Both PPF and SIP are long-term investment plans. However, they differ in terms of their maturity and lock-in period. While SIPs can be stopped and redeemed at any time, a PPF comes with a tenor of 15 years, with a 7-year lock-in period. After that, you can withdraw the amount partially.
    Also, in the case of PPF, an extension of up to 5 years is allowed on maturity. But you cannot close a PPF account regardless of whether it is active or inactive. Here, one benefit that both offer is that you do not have to invest a lump sum amount. Both options allow you to invest periodically, at your convenience.

  • Do you prioritise safety and want secure returns?
    PPF is a government-backed investment instrument so the security factor is high. Apart from assured returns, this instrument ensures that your money is in safe hands. On the other hand, investing in SIPs is investing in market-linked securities. So, the risk quotient is higher. However, since financial experts manage SIPs, you can breathe easily. Also, staying invested in the long run will negate the impact of any rough patch where the market dips.

  • Is earning a high rate of interest crucial?
    When it comes to analysing both these options based on returns, you will find that PPF offers you a rate of interest of 7.1% per annum. However, SIPs offer you a higher return as the average interest rate ranges between 12% and 15%, and can go up to 21% under pleasant market conditions.
    So, you can capitalise on your savings by investing in an SIP with trusted fund houses such as Bajaj Finance. Here you will benefit from a high rate of interest as well as experienced fund managers.
  • Do you want high liquidity from your investment?
    You can partially withdraw funds from your PPF in case of emergencies. The amount for withdrawals is capped at less than 50% of the total balance at the end of the fourth preceding year, or the year preceding the year of withdrawal, depending on whichever of the two is lower. But, note that you can place a withdrawal request from the 7th year onwards, once each year. SIPs, on the other hand, are very liquid and you can redeem them at any point in time. All you need to do is pay a small exit charge if you are exiting before the holding period is up, and pay tax on your short-term capital gains if it is applicable.

Frequently Asked Questions

Can we do SIP in PPF?

Yes you can invest in PPF 12 times a year.

Is PPF a lump sum or SIP?

A PPF account allows for a minimum tenure of 15 years, requiring an initial deposit of at least Rs 500. The maximum allowable deposit in this account is capped at Rs 1,50,000, which can be contributed either as a lump sum or in 12 annual installments.

What are the disadvantages of PPF?

PPF has a significant downside due to its 15-year lock-in period, limiting early access to funds, except in emergencies or specific circumstances. Additionally, its interest rates, currently at 7.1%, are lower than some other investment options like mutual funds or EPF/NPS. PPF isn't a liquid investment, making quick access to funds difficult. It's exclusively for individuals, not allowing NRIs, HUFs, trusts, or entities to open accounts. The annual investment limit stands at INR 1.5 lakh, and PPF lacks flexibility in terms of account management. Premature closure is only possible after five years, incurring a 1% interest penalty. These factors can affect its suitability for certain investors.

Which one is better SIP or PPF?

The choice between SIP and PPF depends on your financial goals and risk tolerance.

Which Gives Higher Returns: SIP OR PPF?

SIP (Systematic Investment Plan) in mutual funds has the potential for higher returns than PPF (Public Provident Fund) over the long term, but it also carries higher market risk.

Do PPF and SIP offer Any Benefit To Me As An Investor?

Both PPF and SIP offer benefits to investors; PPF provides safety and tax benefits, while SIP offers the opportunity for market-linked returns.

Which investment is better PPF or SIP?

Comparing PPF and SIP depends on your financial goals and risk tolerance. PPF is a safer option, while SIP in mutual funds can potentially yield higher returns but comes with market risk.

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