Usually investors are confused about which one to choose from PPF and debt funds and cannot decide which option is better for them, so through this article we are going to give you information related to this, whose On the basis of this you will be able to choose a better option for you.
Debt fund
Debt funds are primarily known for investing in fixed income securities such as corporate bonds, treasury bills, commercial paper and money market instruments. Investors mainly invest in debt funds to earn income in the form of interest. The interest paid by the debt fund issuer to investors at maturity is predetermined. That is why they are known as fixed income securities. Debt funds aim to provide consistent returns to investors throughout the investment horizon. Investors have to choose the period of investment corresponding to the fund. Depending on the investment horizon, investors have a choice of various options such as liquid funds, short-term or ultra short-term funds, dynamic bond funds, debt hybrid funds and income funds.
PPF
Public / Public Provident Fund (Public Provident Fund – PPF) was launched in India in the year 1948. It is very popular among investors due to the tax benefits that accrue on investing in this scheme. The main objective of this scheme is to help investors save. Interest is paid on making a plan. Investors can invest in this scheme to build a sufficient corpus and save for retirement planning, child education or marriage.
PPF vs Debt Fund
Let us look at some important aspects of both debt funds and PPF, this will help you in choosing the right investment option –
Rate of interest
Debt funds typically offer to provide returns in the range of 7% to 9%, which is higher than traditional investment plans. On the other hand, the rate of interest on investment in PPF is based on quarterly revision and the current interest rate is 7.9%, which is applicable from 15 October 19.
Investment security
PPF is a long term investment scheme supported by the central government. You can open a PPF account at any post office near you. Your investment in it is completely safe, as it is backed by the government and the risk in its investment is minimal. On the other hand, to invest in debt funds, you have to follow the path of mutual funds. Debt funds have credit risk and interest rate risk, which makes debt funds a riskier option than PPF. Credit risk carries the risk of default, as an increase in the interest rate can cause bond prices to fall.
Risk ratio
Debt funds and PPF are both low risk products compared to equity funds. However, when comparing debt funds and PPF, we can conclude that debt mutual funds are riskier than PPF. Let’s try to understand why? The fund manager of a debt fund invests in securities according to the period of investment. As we know that debt securities are traded, the NAV of the scheme changes. Debt funds do not have a fixed return due to fluctuations. This is why many traditional investors consider PPF better than debt funds.
investment return
Debt funds have the ability to outperform and deliver good returns due to fluctuations in NAV. Fund managers often emphasize a mix of products to enhance the performance of debt funds. Through it manage credit risk and make profit from the changing interest rate cycle. For this reason it is considered capable of giving good returns. However, one has to pay long term capital gains tax or short term capital gains tax depending on the investment horizon. The tax returns after tax are reduced. On the other hand PPF is known for giving good returns. However the maximum amount is capped upon investing in it. Since investment in PPF falls under the EEE category, it provides maximum tax benefit as compared to other investment instruments. So if you invest 1.5 lakh rupees in PPF in a year, you can get maximum benefit due to the tax benefit available in it.
Which investment option is better?
Both debt funds and PPF are a good investment option for investors with low risk exposure. Debt funds seek to maximize returns by diversifying. The aim of PPF is to provide safe returns through interest income and compounding of principal amount. Debt funds can provide good returns through diversification, but returns are not guaranteed. Investing in debt funds is suitable for investors who invest in both small and medium investment horizons. On the other hand, the PPF scheme is an ideal option for investors who want to build a fund while staying invested for a long time. This scheme is best suited for traditional investors who want decent returns at low risk. PPF has a lock-in period of 15 years, while debt funds offer liquidity. Thus before choosing either one, you should consider factors like liquidity and investment horizon. If you want to invest for a long period, you can choose PPF and if you want to stay invested for a short period, you can choose debt funds.