PPF v/s International mutual funds: Which one to go for?
What's the story
Investing is crucial in financial planning, but the number of choices can be overwhelming. In India, two options shine: Public Provident Fund (PPF) and International Mutual Funds. PPF offers government-backed security with fixed returns, while International Mutual Funds provide exciting opportunities in the global market. This article delves into both, empowering investors with knowledge to make the best decisions.
Safety first
Understanding PPF: A safe haven
PPF is super safe, as it is backed by the government of India It provides a fixed interest rate (currently 7.1%) that is tax-free under Section 80C of the Income Tax Act. The minimum annual deposit is ₹500, while the maximum is ₹150,000. PPF accounts have a lock-in period of 15 years, which makes it a good choice for long-term savings goals.
Global exposure
Diving into international mutual funds
International mutual funds invest in companies beyond India's borders, providing diversification from domestic markets. These funds can focus on one specific country or encompass a broad range of countries. While carrying market risks and vulnerability to currency fluctuations, they present opportunities for higher returns by tapping into the fast-paced growth of international markets.
Tax matters
Tax implications: Know before you invest
PPF investments enjoy tax exemption for both principal and interest under Sections 80C and 10(11). On the other hand, international mutual funds gains are taxed as per foreign asset laws. Short-term capital gains, if sold before three years, are taxed as per the individual's tax slab. Long-term gains, if sold after three years, attract a 20% tax with indexation benefits.
Accessing your money
Liquidity concerns addressed
PPF accounts, while having a 15-year lock-in, only allow partial withdrawals from year seven under specific circumstances. Loans against PPF can be taken only between years three and six. On the other hand, global mutual funds typically have no lock-in period (except for specific categories like ELSS), offering greater flexibility in accessing your funds.
Decision time
Making an informed choice: Risk v/s reward
How to decide between PPF and International Mutual Funds? It all comes down to your risk appetite and investment horizon. Prefer a safe bet with guaranteed (but potentially lower) returns - PPF is your friend. Comfortable with some risk and want the potential for higher returns by accessing international markets - International Mutual Funds are the way to go.