Are SIP investments better than PPF or bank FDs in India?

SIP investment India options are aplenty and these have long been considered as one of the best ways to build wealth for the future while comfortably outstripping inflation. You can invest a fixed amount on a monthly basis through SIPs while investing regularly will help you average out the price for purchase while safeguarding you from hitting any market peak/fall when you are investing. SIPs also help you get more units of the mutual fund when the price of the fund reduces.

On the other hand, a far cry from online SIP investments is the Public Provident Fund (PPF). This is a savings scheme with a Government guarantee in India. The returns will be fixed although the Government sets the rate of interest on a quarterly basis. PPF accounts may be easily opened across major banks or post offices. Rates of interest usually hover around the 8% mark and slightly lower/higher at times.

Which is better- SIP or PPF? 

SIP funds have moderate safety levels as compared to PPF investments although the latter has moderate returns in comparison to mutual funds. The levels of liquidity are always higher for SIP schemes while they are comparatively lower for PPF investments in India. Coming to taxation, the SIP route towards investing in mutual funds draws lower rates of taxes and PPF remains completely exempted from taxes.

You can always opt for tax saving SIP mutual funds or ELSS (equity linked savings scheme) with a lock–in period of 3 years and eligible deductions up to Rs. 1.5 lakh under Section 80C for better tax-efficiency in India. PPF of course, remains Government guaranteed in terms of the returns and principal amount. The investment in SIPs remains subject to market fluctuations and other risks. Values of equity funds will keep changing on a daily basis owing to stock price variations. Yet, the potential for growth is higher through SIP investments in mutual funds over a longer period of time. Investing through installments every month (SIPs) will help you lower risks and volatility levels. This spreads out your investment, helps you gain from the power of compounding and also from rupee cost averaging benefits.

PPF returns remain fixed although the returns from mutual funds are linked to market performance in India. PPF deposits come with 15-year lock-in periods while mutual funds have higher liquidity levels and can be redeemed anytime with the exception of ELSS investments (3-year lock-in periods). You can get loans against deposits in PPF accounts from the 3rd-6th year of opening the account. Partial withdrawals are allowed only from the beginning of the 7th financial year from the year of opening the account. You can similarly get loans against holdings in mutual funds although rates of interest and processing charges may be on the higher side. Mutual fund firms may also impose the exit load charge or penalty upon premature redemption.

It is always tough to choose between fixed income and market linked investment options. However, you should look at some PPF investment if you are absolutely averse to taking risks. However, those who are willing to take lower risks or moderate ones to earn higher returns and comfortably surpass inflation (and also want higher liquidity and flexibility at the same time) should go for SIPs. Investing through the SIP route helps in spreading out and lowering risks greatly as well. Reports also indicate how SIPs held for 15 years may give returns (approximate) to the tune of 1.5 times of the PPF returns for the same period in India on an average.

Mutual Fund vs. FD- Which should you choose in India? 

In a similar vein, choosing an SIP investment India could be better if you are looking at gaining more in the long term. Of course, risk-averse investors should always have some amount invested in fixed deposits or FDs at banks. Yet, remember that the FD cannot be broken before the expiry of its pre-fixed tenor and even if you do, there are charges and other aspects to handle. The interest earned by you on the FD will be taxable in your hands in India. You can gain from FDs if you invest a lump sum amount while mutual fund investments can be started with amounts as low as Rs. 500 every month.

Of course, the returns from long-term mutual fund investments will be higher and so are the market risks which are almost negligible in case of bank FDs. You also gain from higher liquidity with SIP investments along with gaining from rupee cost averaging and the sheer power of compounding. Choosing ELSS investments may help you get tax deductions up to Rs. 1.5 lakh under Section 80C in India if you are comfortable with the 3-year lock-in period.