Public Provident Fund, popularly referred to as the PPF, is a long-term voluntary, savings instrument that members of Gen X are extremely familiar with. But how does their favourite PPF compare against today’s darling mutual funds in terms of returns? Anyone who is young and is weighing strategies about long-term wealth creation and would be interested in finding it out. So, take a look PPF vs mutual funds comparison below:
Value Research, an investment research firm, has made some detailed calculations that an investor can expect out of the two on a long-term basis.
To begin with, PPF and mutual funds are two different categories of instruments. While the Public Provident Fund is a guaranteed-return one, one big category of mutual funds invests in equities and other instruments that carry market risks and are volatile. That means the returns that an investor will get will fluctuate over time.
Rs 1,000 a month
The calculation that Value Research has done is based on the following assumption – Rs 1,000 is invested every month in PPF and a few funds for 30 years. Where would the corpus stand today?
According to the Noida-based firm, PPF would swell the investments to Rs 16 lakh. It works out to an annualised return (XIRR or Extended Internal Rate of Return) of 8.6%.
Now check returns from mutual funds. Value Research has considered only growth options in its calculations.
Franklin India Prima Fund would beget a return of 20.9% which would swell the kitty to Rs 1.9 crore. This is the best performing one in the list of funds that was considered for the study.
The second-highest performer Aditya Birla Sun Life MNC Fund could get an investor 19.1% and, therefore, the corpus would reach Rs 1.3 crore.
Franklin India Bluechip Fund (returns of 18.2%), HDFC Capital Builder Value Fund (17.6%), Tata Large & Mid Cap Fund (16.8%), HDFC Large & Mid Cap Fund (14.8%), Taurus Flexi Cap Fund (14.3%) are the other funds considered by Value Research.
Among the funds the investment firm considered, LIC MF Hybrid Aggressive Fund would have offered the least returns. It would have got returns of 9.4% and the corpus would have stood at Rs 18.5 lakh.
PPF interest rates
Between April 1, 1986 and January 14, 2000, PPF used to deliver a rate of interest of 12%, quite unthinkable today. From January 15, 2000 to February 28, 2001, it came down to 11%.
Significantly, at 12% any sum of money doubles itself in six years flat.
Don’t rule out PPF altogether
Despite the huge difference in returns between PPF and mutual funds, investment strategists are quick to point out major attractions of PPF.
“I shall not say completely no to PPF. One, there is this strong guarantee that money in PPF would stay secure and it will generate the kind of return it is supposed to generate. Predetermined returns are a big pull for the average investor. A very large number of investors have trusted PPF as a very important source as an important source of fixed-income portfolio,” said Nilanjan Dey, director, Wishlist Capital.
PPF Tax sops
PPF is not close to the market and therefore, it would not appeal to all categories of investors and certainly not to the younger ones, Dey argues.
The tax sops that PPF offer also add to the attraction of the instrument and raise effective returns to an extent. Investment in the PPF is enlisted in section 80C of the Income Tax Act and, therefore, investment up to Rs 1.5 lakh a year is tax deductible.
For young investors, just as for older people, tax sops are important too, points out Dey.
PPF vs mutual funds comparison: While PPF was an extremely popular instrument to GenX investors, mutual funds have become popular to the young investors of today. But how would they compare in the vital parameter of returns? Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
