I am 41 years old and wish to invest Rs 2,000 every month. I am confused between investing in PPF or to start an SIP in a diversified mutual fund.
— Suman Dutta
When you talk of diversified mutual fund we are assuming you mean an equity fund. The comparison between these two instruments is quite different.
If you are completely averse to taking any risk with your money, then opt for the Public Provident Fund (PPF). It is safe because it is backed by the government. You are given an assured return. You get a tax break under Section 80C for amounts invested in PPF and the interest earned is tax free. The maximum you can invest is `1 lakh per financial year. In its new format, the PPF guarantees 8.6 per cent per annum. This rate is dynamic and linked to the yield for comparable government securities and the rate change will occur only once in a year and the relevant announcement will be made on April 1 of each year. So the return on investment will be fixed for the year in which the investment is made.
Now if you are open to taking risk, living with a return that is potentially higher than PPF but not guaranteed and subject to volatility, then you could invest in a mutual fund. If you want the tax break, then you could invest in an equity linked savings scheme (ELSS). The lock-in period here is three years, as against 12 years for the PPF. In our category watch section in this magazine, we present you with the best funds in this category.
If you are not interested in the tax break on the equity funds but want to make a start by investing in mutual funds, then we suggest you consider a balanced fund which invests in equity and debt instruments. You could look at HDFC Balanced or DSPBR Balanced.
This article was originally published on April 06, 2012.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
