PPF versus Mutual Funds: Everything you need to know before investing!

PPF versus Mutual Funds: Everything you need to know before investing!

by Tanushree Jaiswal Last Updated: May 17, 2023 - 01:39 pm 923 Views
Listen icon

While putting all the money in Fixed Deposits is a pretty bad option for new-age investors, it is quite important to understand all the investment options and the risks associated with the product available in the market. In today’s world, investors have a plethora of investment products to suit their financial goals. They can range from low beta market returns to aggressively managed portfolio. Some investors choose investment options that provide tax benefits while some use actively managed funds to beat market for excessive returns. Here, we shall be discussing two popular investment options available for the Indian investors. 

MUTUAL FUNDS and PUBLIC PROVIDENT FUND (PPF) are two popular options to choose from. Interestingly, both serve different purposes and depending upon the investor’s need and financial goals, the suitable investment option is selected. 

What is a Mutual Fund? 

A mutual fund is an investment option that pools money from multiple investors to form a diversified portfolio of stocks, bonds, or other securities according to its investment objectives. They are managed by professional investment managers, wherein the managers use the pooled money to invest in different asset classes. The individual investors in the fund own a proportional share of the portfolio, which allows them to benefit from the fund's diversification and professional management. Mutual funds are a popular investment option for individual investors because they offer a convenient way to invest in a diversified portfolio of assets with relatively low minimum investment requirements.

What is Public Provident Fund (PPF)?

PPF stands for Public Provident Fund, which is a popular long-term savings scheme that is backed by the Indian government. The PPF scheme was introduced in 1968 to encourage savings among the general public and to provide them with a safe and secure investment option.

Under the PPF scheme, individuals can invest up to a maximum of Rs. 1.5 lakh per year and earn a fixed rate of interest on their investment. The interest rate on PPF is set by the government and is subject to change every quarter. The current interest rate on PPF is 7.10% per annum. The PPF account has a lock-in period of 15 years, and the investment made in the PPF account is eligible for tax deduction under Section 80C of the Income Tax Act. Additionally, the interest is earned and the maturity amount are also tax-free. The PPF scheme is a popular investment option in India, especially for those who are looking for a safe and secure long-term investment option with tax benefits.

Difference Between Mutual Funds and PPF:

The two products serve very different purposes and have a specific nature of their own. Let’s explore the key differences between Mutual Funds vs PPF to understand which is the type of investment the investor is looking for.


Mutual Funds 


Type of Investment 

Mutual Fund schemes are linked to the Market performance, wherein diverse portfolio mix is created based on the risk profile of the investor. 

PPF is a scheme run by the Government of India with a view of accumulating savings to build ac corpus, with providing Fixed income in the form of interest. 

Investment Objective 

Capital appreciation is the main objective here which depends on the performance of the underlying assets. 

The main objective here is to provide Long-term savings by providing moderate interest rates which is subjected to change as per government policies. 


Moderate to High, depending upon the investment rationale and market sentiment 

The risk is relatively Low, with more focus towards creating long term savings. 

Return Potential 

Medium-Higher returns over the long term, which is highly linked towards the performance of the fund manager. 

Moderate and stable returns. There is relatively no risk of losing the capital. 

Lock-in Period 

No lock-in period except in some cases; investors can buy and sell units anytime as per their risk appetite. 

15-year lock-in period. Upon maturity, PPF may be subsequently renewed in batches of 5 years thereafter. 


High liquidity, investors can redeem units anytime 

Low liquidity, partial withdrawals allowed after 6 years 

Tax Benefits 

No tax benefits (Except for ELSS) on gains realized on redemption before 1 year 

Investment eligible for tax deduction under Section 80C, interest and maturity amount are tax-free 

Professional Management 



Minimum Investment 

Varies from fund to fund 

Rs. 500 per year 

 As we observe, Mutual Funds and PPF have different investment objectives, risks, return potentials, liquidity, and tax benefits. Mutual funds are market-linked investments that aim to provide capital appreciation over the long term, whereas PPF is a fixed-income investment option that aims to provide long-term savings with moderate returns.

While mutual funds are managed by professional fund managers, PPF accounts do not require professional management. Additionally, mutual funds do not have a lock-in period, whereas PPF has a mandatory 15-year lock-in period.

Finally, while mutual funds do not offer any tax benefits on gains realized on redemption before 1 year, investment made in PPF is eligible for tax deduction under Section 80C of the Income Tax Act, and the interest and maturity amount are also tax-free.

Public Provident Fund and Mutual Fund historical returns

·         Historically, PPF has delivered 7.00-8.70% returns on an annual basis. 

·         The current PPF returns stands at 7.10% per annum. 

·         Mutual Fund returns are subjected to market fluctuations and vary greatly. Also depending upon the investment mandate, different Mutual Fund product tend to perform differently. 

Tax Benefit Comparison in Mutual Funds and PPF

Tax Benefit 

Mutual Funds 


Tax Benefit on Investment 

Investment made in ELSS mutual funds only. is eligible for tax deduction under Section 80C of the Income Tax Act, up to a maximum of Rs. 1.5 lakh per annum. Other mutual funds do not provide any tax benefits. 

Investment made in PPF is eligible for tax deduction under Section 80C of the Income Tax Act, up to a maximum of Rs. 1.5 lakh per annum. 

Tax Benefit on Interest Earned 

The interest earned on mutual fund investments is taxable as per the investor's tax slab. However, if the investment is held for more than 1 year, it is considered as a long-term capital gain, and gains up to Rs. 1 lakh are exempt from tax. 

The interest earned on PPF investments is always tax-free. 

In short, PPF is a tax-free scheme, delivering about 7-8% returns per annum while Mutual Funds (except ELSS) are taxable and tax rate depend upon the holding period and tax slab of the investor.

Who should invest In Mutual Fund? 

In a nutshell, Mutual Fund should be preferred by investors who wish to earn more returns via market performance and wish to diversify their asset allocation. It can be an excellent option for those who want to seek professional management and have limited funds. The investors having medium-term to long term investment horizon can think of investing in mutual funds. It is essential to know your investment objectives and risk tolerance before investing.

Things to know before investing in Mutual Funds:

Key terms like Expense Ratio and Exit load are to be understood by the investor before investing. The mutual fund past performance should be looking into but should not be the sole criteria in choosing mutual funds. Investors should clearly define their Investment horizon, Risk profile and Investment objective before investing.

Who should invest in PPF?

PPF should be considered by those investors who have a long-term horizon as the funds shall be locked-in for 15 years. PPF are for those who are “Risk-averse” and seek tax benefits. PPF can be greatest option for retirement planning and fixed income asset.

Things to know before investing in PPF:

Key terms that define investing in PPF are investment limit, lock-in period, interest rate, tax benefit and withdrawals. It is crucial to read the PPF scheme document and consult a financial advisor if needed.


In a nutshell, both mutual funds and PPF are popular investment options in India, but they have different features and benefits. Mutual funds are suitable for investors who are willing to take risks for potentially higher returns, while PPF is suitable for investors who are risk-averse and looking for tax benefits with guaranteed returns. 

Investors should consider their investment objectives, risk tolerance, and investment horizon before choosing between mutual funds and PPF. It's also essential to understand the investment features, tax benefits, investment horizon, and other terms and conditions before investing in either option. 

Ultimately, the choice between mutual funds and PPF depends on the investor's investment goals and risk appetite. Investors can consider a combination of both options to diversify their investment portfolio and balance risk and returns. 


·  How to invest in PPF & Mutual Funds both? 

To invest in Mutual Funds and PPF, you need to open a PPF account either with a post office or a bank that offers PPF scheme. Subsequently, while investing in a mutual fund, open a mutual fund account with a broker or Mutual fund house. It's essential to monitor and manage your investments to ensure that they are aligned with your investment goals and risk profile. 

·  Which is the best option for investment from Mutual Funds Vs PPF? 

The suitability of investment depends on the risk profile, financial goals, age, investment horizon and tax benefits of the investor. It is advisable to consult your financial advisor in choosing which investment vehicle suits to your investment objectives. 

· Which one is the safe options for investment from Mutual Funds Vs PPF? 

PPF is considered to be a safer investment option because it is backed by the Government of India and offers guaranteed returns. PPF investments also have a lock-in period of 15 years, which means that the investor cannot withdraw the funds before the maturity period, ensuring long-term savings. 

· What is the minimum amount I can invest in PPF and Mutual Funds? 

In case of PPF, the minimum investment amount is Rs 500 per year, while in case of mutual funds, the minimum investment can vary in different mutual funds scheme which is as low as Rs 100 to as high as Rs 5000 or more.

How do you rate this blog?


Start Investing in 5 mins*

Rs. 20 Flat Per Order | 0% Brokerage


About the Author

Tanushree is a seasoned professional with 6 years of experience in the Fintech and Edtech industry.


Investment/Trading in securities Market is subject to market risk, past performance is not a guarantee of future performance. The risk of loss in trading and investment in Securities markets including Equites and Derivatives can be substantial.
Open Free Demat Account
Resend OTP
Please Enter OTP
Mobile No. belongs to

By proceeding, you agree to the T&C.

Latest Blogs
Swing Trading Stocks: Week of 11 December 2023

Swing Trading Stocks for the Week

Weekly Market Outlook for 11 December to 15 December

The Nifty index soared to a historic high of 21006.10 on December 8, following a brief pause in the previous session. The catalyst for this surge was the Reserve Bank of India's decision to maintain the repo rate at 6.5 percent for the fifth consecutive time. Governor Das, in his speech, emphasized the robust fundamentals of the Indian economy, citing healthier balance sheets of banks and corporate firms.

India's GDP is growing, did you get an appraisal?

“India will become the third largest economy by 2030”, said a report recently released by S&P Global. People buzzed about this news right away. While other countries are struggling with inflation and recession, India seems to be heading towards economic greatness. According to S&P, India is set to grow by 7 percent in the fiscal year 2026-27 and become the third-largest economy by 2030.