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PPF vs mutual fund: Which is better?

While both these options are inherently different, we compare the duo's long-dated performance

PPF vs mutual funds: Which is the better investment?AI-generated image

dhanak हिंदी में भी पढ़ें read-in-hindi

In a humble Indian household, when a young earner seeks guidance on where to invest, the elders often introduce them to the Public Provident Fund (PPF).

You can't fault them either. Between 1985 and 2000, PPF was dishing out returns as high as 12 per cent annually. Due to such high returns and the sovereign's backing, PPF became the go-to investment option.

As such, many have embraced PPF. According to the Reserve Bank of India (RBI), PPF had an eye-popping Rs 9.4 lakh crore of investor money as of March 2023.

But does PPF stand the test of time? Or has it become a relic of the past? One of our subscribers recently asked this question. Given the rise of the mutual fund industry in recent years, he wondered how their returns stack up against PPF.

The subscriber's valid question piqued our interest, so we looked across the whole array of mutual fund categories and identified the funds (growth plans) that have completed three decades. Here's what we found:

PPF Vs Mutual Funds

Assuming Rs 1,000 invested every month over the last 30 years. (Total amount invested is Rs 3.6 lakh)

Current portfolio value Annualised return % (XIRR)
Public Provident Fund (PPF) 16 lakh 8.6
Franklin India Prima Fund 1.9 crore 20.9
Aditya Birla Sun Life MNC Fund 1.3 crore 19.1
Franklin India Bluechip Fund 1 crore 18.2
HDFC Capital Builder Value Fund 96.2 lakh 17.6
Tata Large & Mid Cap Fund 81.9 lakh 16.8
HDFC Large & Mid Cap Fund 54.1 lakh 14.8
Taurus Flexi Cap Fund 49 lakh 14.3
LIC MF Flexi Cap Fund 21 lakh 10
LIC MF Aggressive Hybrid Fund 18.5 lakh 9.4
Note: Regular growth plans considered. Portfolio value as of May 31, 2024. The returns are pre-tax. In case the monthly NAV was unavailable, the previous month's NAV was used.

Even the lesser performing mutual funds have outpaced PPF in the last thirty years, suggesting the latter's fall from grace. Broadly speaking, mutual funds would have grown your money between 9.4 and 20.9 per cent annually in the last 30 years, higher than PPF's annualised 8.6 per cent returns.

Unfair comparison?

That said, it's important to note that PPF and mutual funds (at least those that are mentioned in the table above) are different breeds. While mutual funds can invest across equity, debt, gold and other asset classes, they carry the inherent risk of market volatility. In contrast, PPF is a fixed-income instrument solely focusing on low-risk, low-reward government securities.

But, if you are a long-term investor (five years and more), mutual funds investing in equity can be wealth-compounding sprinters, evident from their impressive long-term returns. That's because, even though equity mutual funds can be volatile in the short term, they usually generate higher returns in the long run.

Also read: NPS vs PPF vs EPF: The best retirement investment option

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