Investing can be defined as the act of allocating funds to investment schemes. The said investment schemes such as mutual funds are known for allocating the investor’s money in the market. But there’s one thing about mutual fund schemes is that they are not a monolith. There are numerous types of mutual funds that are available asinvestment options. Each of these different variants is known to cater to different investment needs. Apart from mutual fund schemes, another investment tool you can opt for is the public provident fund, or PPF as it is referred to. A lot of potential investors are known to be confused about the choice of investment between these two choices. Please read below to learn what these two investment schemes are, and which is better.
What are mutual funds?
A popular market investment scheme, mutual funds are an investment tool in which yourinvestments are pooled with the money of other like-minded investors. After the collection of enough money in the fund, the money is used to purchase financial securities such as bonds, gold, money market instruments, and stocks. Under these schemes, amutual fund portfolio is managed by a professional who is referred to as the fund manager. The fund manager has one goal.It is to provide you with optimum returns on your investment. Afterward,once revenue is earned through the scheme, the income generated is divided proportionately among the investors.
Are there any benefits associated with mutual funds?
Here are some of the advantages that are associated with investing in mutual fund schemes:
- They are convenient to use:
A major reasonwhy mutual funds are popular is that they can be considered a hassle-free and straightforward investment exercise. Moreover, it is also possible for you to complete the activation procedure from the comfort of your home. And, once your investment journey starts, you will get regular updates about your holdings. This feature ensures that you can make necessary adjustments if required.
- With mutual funds, it is possible to start with a small amount:
A common misunderstanding about mutual fund investments among people is that they are expensive and that the expensive sum was supposed to be paid at once. But the truth is that you can begin investing even with a small amount. A systematic investment plan (SIP) allows you to invest a small amount at regular intervals. In case your income rises over time, you can also choose to increase your SIP allocation. Also, through SIPs, you can benefit from the power of compounding.
- Investors can enjoy professional help through mutual funds:
While you may think that you need to take care of all the mutual fund investments all by yourself,in reality, a fund manager is responsible for the upkeep of your portfolio and handling your investments. Generally, fund managers are supported by a team consisting of researchers who track the market. Mutual funds are known for being suitable for both salaried professionals and business owners as they might not have the time to track markets or make investments on time.
What are public provident funds(PPF)?
Introduced in India in 1968, the PPF, i.e., the public provident fund is a government-run long-term investment programthat is designed to encourage citizens to save.PPFs are also regarded as a savings-cum-tax savings investment scheme that helpsyou to create a retirement corpus while simultaneously saving on annual taxes. If you are seeking a safe investment option that does both, i.e., save taxes and earn guaranteed returns,look no further than PPF.
Are there any benefits associated with public provident funds (PPF)?
- They are known for offering a high rate of interest:
Generally, the central government is known for reviewing the interest rate on the PPF schemequarterly. In the past, the interest rate on PPF has been somewhere between 7.6% and 8%. It typically tends to fluctuate somewhat higher or lower as a response to prevailing economic conditions. For example, in the first quarter of the fiscal year 2022-23, the interest rate on PPF is approximately 7.1%. However, it is also important to note that in contrast to fixed deposit (FD), PPF offers its investors a higher rate of interest.
- They come with a long tenure:
PPFs generally come with a tenure of fifteen years. It is possible to fully withdraw your PPF investment only upon maturity. But, from the seventh year, i.e., after six years, you can opt for partial withdrawals.
- They offer securities:
As these schemes are offered by the government, you can take the advantage of the security afforded by investments in PPFs. These investments are theoretically considered to be more secure.
Which is better between mutual funds and PPF?
PPFs are known for offering consistent profits, making them suitable for low-risk investors. On the other hand, mutual funds are known for investing in a wide range of asset classes, and as a result, they come with the potential of offering higher returns. However, because these schemes are linked to the market, they also come with higher risks.