PPF or stocks: Which is better for Indian investors?
What's the story
Public Provident Fund (PPF) is a long-term investment scheme backed by the government of India. It is a popular choice for risk-averse investors looking for steady returns. But, unlike PPF, investing in stocks can give investors higher returns, albeit with higher risk. Here's comparing PPF and stocks to help you decide which suits your investment goals better.
#1
Understanding PPF and its benefits
PPF is a government-backed savings scheme with a tenure of 15 years. It offers fixed interest rates, which are currently around 7.1% per annum. The minimum deposit required is ₹500 per year, and the maximum is ₹1.5 lakh. PPF accounts can be extended indefinitely in blocks of five years, making it a good option for long-term savings.
#2
Stock market: Potential for higher returns
Investing in stocks can give you higher returns than traditional savings options. The Indian stock market has historically given an average annual return of over 12%. However, stock investments come with high volatility and risk. Investors must do thorough research and be prepared for market fluctuations.
#3
Risk factors associated with stocks
While stocks can give you higher returns, they also come with a higher risk. Market volatility can lead to losses, and there's no guarantee of returns as is the case with PPF's fixed interest rate. Investors must be prepared for potential losses and have a risk management strategy in place.
Tip 1
Tax implications: PPF vs stocks
Both PPF and stock investments come with tax benefits, but in different ways. The contributions to PPF are eligible for tax deductions under Section 80C of the Income Tax Act up to ₹1.5 lakh per year. Long-term capital gains from stocks, over three years, are taxed at 10% beyond ₹1 lakh per year, while short-term gains are taxed at 15%.