What are PPF & SIP? Which will be a better option for investment at the age of 24?

Nutan Gupta

04 May 2017

New Page 2

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 The money can be withdrawn anytime without paying any penalty.

Conclusion:

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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mutual-fund

Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 


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What are PPF & SIP? Which will be a better option for investment at the age of 24?

Nutan Gupta

04 May 2017

New Page 2

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.

Conclusion:

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.