PPF vs Mutual Fund: How to save for retirement

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PPF vs Mutual Fund: Retirement means end of earning for many but it certainly doesn’t mean end of spending. So, an earning individual has to accumulate enough wealth in one’s retirement portfolio so that he or she can meet one’s financial needs as a retiree. As retirement planning means long-term investment, Public Provident Fund (PPF) account is one of the most preferred investment options among the investors. However, investing in mutual fund is also fast catching as it gives option to an investor to invest in monthly Systematic Investment Plan (SIP) mode. In mutual fund SIP mode, an investor can invest from a small amount and can go for long by increasing the amount in sync with one’s rising income. So, it becomes important to know how to save for retirement planning if one has both PPF and mutual fund options available for investing.

Speaking on PPF vs Mutual Fund for retirement planning Pankaj Mathpal, Founder & CEO at Optima Money Managers said, “People invest in PPF with a notion that it’s a government-backed assured return option, which is incorrect. From April 2016, PPF and other small saving schemes are no more assured return tools because its interest rate is announced on a quarterly basis. So, while investing in PPF, one won’t be able to know whether the investment goal can be met with PPF or not. One can only assume with an average PPF interest rate.” Currently, PPF interest rate is 7.1 per cent for April to June 2021 quarter.

Mathpal said that in mutual funds one has the option to invest in debt fund and equity fund. If one invests in debt fund, one can expect to get at least 8 per cent return while in equity mutual fund for long-term the expected return would be at least 12 per cent. So, from investment return perspective, it’s better to go for mutual fund instead of PPF, said Pankaj Mathpal.

Advising Gilt Fund to investors looking for retirement fund accumulation Kartik Jhaveri, Director — Wealth Management at Transcend Consultants said, “There is risk involved in mutual fund investment even if the debt funds are chosen. So, those who want completely risk-free retirement planning, they can think of Gilt Fund option because in the long-term, it has a record of giving around 9 per cent return and it is completely government-backed investment option.”

Suggesting diversified portfolio for retirement planning Jhaveri said that one should allocate 20-25 per cent of one’s portfolio allocation to PPF while rest can be chosen either of mutual fund or Guild Fund depending upon the risk appetite of the investor.

However, Pankaj Mathpal strongly recommended mutual fund ahead of all options and said, “If the investment is for 15 years or more, equity mutual funds should be chosen ahead of PPF and Guild Fund. Record suggests that equity gives double digit growth for an investment made for period more than 15 plus years.” He advised investors to allocate 75 per cent to 50 per cent fund in equity and rest in debt if the investor wants to mininmise one’s risk. Even in that case the investment return will be from 10 per cent (6 per cent from equity and 4 per cent from debt in 50:50 debt equity ratio) to 11 per cent (25 per cent in debt and 75 per cent equity leading to 9 per cent return in equity and 2 per cent return in debt).

So, an investor can save for retirement depending upon one’s risk appetite.

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