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Should I extend my PPF or invest in mutual funds?

Dhirendra Kumar tells why it might not be a good idea to invest in PPF


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Should I extend my PPF account by five years on maturity or invest the proceeds in mutual funds?
-Rajesh

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My advice is very simple. PPF is nothing but a 15-year SIP in fixed income. Because of the generation connect, most of us would be advised by our parents to open a PPF account and be at it. 'You will never lose money,' they will say. But in a 15-year time period, an investment in equity, even in a not so great fund would return you 1.5 times or may be twice the money you would get in PPF. Doing a regular investment through SIPs over a period of 15 years reduces risk and makes equity safer.

Anyone who would do an SIP over a period of 15 years, the way you do it in PPF, won't be losing money. You lose money, when you get up one fine morning, like in 2008, and think that everyone is making money but you aren't and then you go and invest. Equities are not risky if you invest regularly over a period of 15 years.

But make sure that you are not investing the maturity proceeds at one go. If the value of your accumulation is Rs 48 lakh and if it goes down by a lakh or two in a certain month, you will be disappointed. If it's a large corpus, spread it over at least 12 to 18 months.

And any other investor who is considering to open a PPF account and filling it with Rs 1.5 lakh every year, consider the tax-saving fund as an alternative. By regularly investing over a period of 15 years, you will get 1.5 times or twice as much as you would get in PPF.

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