Real Estate Vs Mutual Fund - Which is a Better Investment?


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Indian investors have been investing in Public Provident Funds or PPF for a long time. The reason was simple enough- PPF offered more returns than bank deposits. PPF accounts also had complete government guarantee, and the tax breaks were at multiple levels. However, things have changed in the last few years and the returns have slowly come down and created a void, only to be filled with mutual funds.


Investing in mutual funds has its benefits and mutual funds have rightly become a reliable investment instrument in India. But let us explore the difference between PPF vs Mutual fund in depth to understand it better-


  • When it comes to returns, ELSS Mutual funds have a higher edge over PPF. ELSS funds have the potential to earn annual returns of around 10 to 15% when invested for a longer duration. However, there is no guarantee, as returns are subject to market risk. On the other hand, PPF has an annual return of 7.9% which is also subject to change from time to time.


  • Since ELSS mutual funds are equity funds, they are subject to risk, but whereas PPF is virtually free of risk. PPF savings schemes are offered by the government of India. So, PPF accounts offer a fixed interest to investors. Hence, PPF wins in this department.


  • ELSS mutual funds have a lock-in period of just 3 years, whereas PPF has a mandatory lock-in period of 15 years. Moreover, one can only withdraw or take a loan after a period of 7 years.


  • The interest paid by the PPF is fully tax free and there is no tax on redemption as well. When it comes to ELSS mutual funds the dividends are tax free, but are subject to DDT at 11.65%. Capital gains, even on tax saving mutual funds like ELSS are also taxable at 10% on any gains above Rs. 1 lakh.


  • Another major advantage of ELSS mutual funds is that they are instruments for wealth creation over the long term. PPFs on the other hand, do not aid in the creation of wealth.


  • Investing in mutual funds helps to diversify one’s investment portfolio as you can choose to invest in different types of mutual funds according to your investment objectives. Conversely, when you invest in PPF schemes, your money is usually invested in fixed-income bearing securities, offering little to no diversification to one’s portfolio.


So now that you know the difference between PPFs and mutual funds, you can decide for yourself which is the better investment option. Whether you decide to invest in mutual funds or not must completely depend on your investment portfolio. Make sure that your investment options are in line with your investment horizon, risk profile, and financial goals. Happy investing!