What are PPF & SIP? Which will be a better option for investment at the age of 24?
At the age of 24, an individual usually just starts earning. He does not have a lot of money at his disposal. This is also the best time to start long-term investments. Investing early gives you the benefit of rupee cost averaging, thereby giving you compounded returns in the long-term. Though both PPF and SIP qualify for a tax deduction of up to Rs. 1.5 lakh under section 80C of the Income Tax Act, there are some differences between the two instruments.
|Public Provident Fund||Systematic Investment Plan|
|Investment||PPF is a government backed long term small saving scheme.||SIP is a planned approach towards investments. Investments through SIP are usually made on a monthly basis.|
|Where it invests||Forms a part of Govt borrowings and deployed as per Govt. requirements.||Invests in specific mutual funds scheme.|
|Lock-in Period||15 years||If invested in ELSS scheme, the lock-in period is 3 years.|
|Returns||7.9%||Based on equity market returns; usually between 15-18%.|
|Risk factor||As it is backed by the government, it does not involve any risk.||As the returns depend on market performance, there is some risk involved.|
|Liquidity||Pre-mature withdrawals can be made from the start of 7th financial year.||SIP provides easy liquidity. The money can be withdrawn anytime without paying any penalty.|
An individual can choose to invest in any of the two investments or even both - as per his financial dependence and risk appetite. Since he is 24 years old, he can take more risk and invest in SIPs. Individuals who are nearing the age of retirement can choose to invest in low-risk instruments like PPF.
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