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PPF vs Mutual Funds for Child's Education: An Investor's Dilemma

Milind

Milind Vadjikar  |1238 Answers  |Ask -

Insurance, Stocks, MF, PF Expert - Answered on Apr 12, 2025

Milind Vadjikar is an independent MF distributor registered with Association of Mutual Funds in India (AMFI) and a retirement financial planning advisor registered with Pension Fund Regulatory and Development Authority (PFRDA).
He has a mechanical engineering degree from Government Engineering College, Sambhajinagar, and an MBA in international business from the Symbiosis Institute of Business Management, Pune.
With over 16 years of experience in stock investments, and over six year experience in investment guidance and support, he believes that balanced asset allocation and goal-focused disciplined investing is the key to achieving investor goals.... more
Sujit Question by Sujit on Apr 05, 2025Hindi
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Going with your elaborated advice , one more confusion need clarification from you please. I'm investing in PPF for last 8/9 years with goal of child education having time horizon of another 5/6 years . Inflation of cost of education is 8/9% in India, if I'm correct . It is also learned from you , beating inflation with PPF return is not possible . In such scenario , I'm contemplating with the idea of PPF continuation or not . Following few alternatives I'm thinking of , Please advise . 1. Discontinue PPF contribution from this years onwards and start mutual fund SIP same amount ( 12500/month). Let accumulated corpus in PPF grow. If yes, kindly guide which type of MF is better for 5/6 years in hand ? 2. Discontinue PPF contribution from this years onwards and start NPS Vatsalya scheme with same amount ( lumpsum 150000 or SIP 12500 ) . Let accumulated corpus in PPF grow. 3. Diversify Rs.50000 each in PPF, NPS Vatsalya and MF 4. Continue with PPF as it is . Or any other better guidance to fulfill my goal in the said time frame .

Ans: Hello;

Continue with your PPF investments as usual 1.5 L each FY.

You are invested in it already for 8-9 years so no point getting into its pro's and con's at this juncture.

It's a EEE social security product and has its own benefits.

Don't get swayed by any other market noise. Stay the course.

Best wishes;
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Ramalingam

Ramalingam Kalirajan  |8544 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jun 03, 2024

Asked by Anonymous - May 28, 2024Hindi
Money
I have around 4 lakhs in PPF as of now 2024 May and its going to mature by 2029 March . If I invest around 1.5 lakhs around every year from now it will 1.5*5 which is 7.5 lakhs and maturity amount will be around 15 lakhs with prevailing interest rate of 7.1 annually . Is it wise to invest this 1.5 lakhs annually in any Equity Mutual fund for over 5 years getting returns over 12-13% . Which option would be beneficial as PPF maturity amount is tax free.
Ans: Investing wisely requires understanding the potential returns, risks, and tax implications of different investment options. In your case, you are considering continuing your investment in the Public Provident Fund (PPF) versus shifting to an equity mutual fund. Let's explore these options in detail.

Understanding Your Current PPF Investment
You have Rs 4 lakhs in your PPF account, which will mature in March 2029. You plan to invest Rs 1.5 lakhs annually until maturity. The current interest rate for PPF is 7.1% per annum. PPF investments are attractive due to their tax-free returns at maturity.

Projected PPF Maturity Amount
With your planned annual contributions, let's calculate the projected maturity amount.

Current PPF balance: Rs 4 lakhs
Annual investment: Rs 1.5 lakhs for the next 5 years
PPF interest rate: 7.1% per annum
Maturity year: 2029
Given these inputs, the maturity amount can be calculated using the compound interest formula specific to PPF.

PPF Benefits
Tax-Free Returns: The maturity amount, including interest earned, is tax-free.
Risk-Free Investment: PPF is a government-backed scheme, ensuring safety of principal.
Fixed Returns: The interest rate, although subject to change, offers a predictable return.
PPF Limitations
Lower Returns: Compared to equity investments, PPF returns are relatively lower.
Lock-In Period: PPF has a long lock-in period, reducing liquidity.
Exploring Equity Mutual Funds
Equity mutual funds invest in stocks and have the potential to offer higher returns over the long term. You are considering an expected return of 12-13% per annum.

Projected Returns from Equity Mutual Funds
Let’s consider the potential growth of Rs 1.5 lakhs invested annually in an equity mutual fund with a 12-13% annual return over the next five years.

Equity Mutual Funds Benefits
Higher Potential Returns: Equity mutual funds generally offer higher returns than fixed-income investments like PPF.
Liquidity: Equity mutual funds are more liquid compared to PPF, allowing easier access to your money.
Diversification: Mutual funds provide diversification across different stocks and sectors.
Equity Mutual Funds Limitations
Market Risk: Returns are subject to market fluctuations, making them more volatile.
Tax Implications: Capital gains from equity mutual funds are subject to taxes, affecting net returns.
Comparative Analysis: PPF vs. Equity Mutual Funds
To determine the better investment option, let’s compare the projected returns and other factors:

PPF
Initial Investment: Rs 4 lakhs
Annual Investment: Rs 1.5 lakhs
Interest Rate: 7.1%
Maturity Amount: Approximately Rs 15 lakhs (total contributions + interest)
Tax-Free: Yes
Equity Mutual Funds
Annual Investment: Rs 1.5 lakhs
Expected Return: 12-13% per annum
Estimated Value: Higher potential returns, but subject to market volatility and taxation
Tax Implications: Long-term capital gains tax applicable
Calculation Example
If you invest Rs 1.5 lakhs annually in an equity mutual fund, assuming a 12% annual return, the approximate value after 5 years would be significantly higher than the amount invested in PPF.
Risk vs. Return Considerations
PPF
Low Risk: Government-backed, safe investment
Stable Returns: Fixed interest rate, predictable growth
Tax Benefits: Entire maturity amount is tax-free
Equity Mutual Funds
Higher Risk: Subject to market risks, returns can vary
Higher Returns: Potential to earn significantly more than PPF
Taxation: Long-term capital gains tax applies on returns
Assessing Your Financial Goals
Risk Tolerance: If you prefer safety and guaranteed returns, PPF is suitable.
Return Expectation: If aiming for higher returns and willing to take some risk, equity mutual funds are better.
Tax Considerations: PPF offers tax-free returns, while equity funds are taxed.
Recommendations
Given your investment horizon of five years and the goal to maximize returns, consider the following:

Diversified Approach
PPF: Continue investing Rs 1.5 lakhs annually for the tax-free, guaranteed returns.
Equity Mutual Funds: Allocate a portion of your funds to equity mutual funds for higher potential returns. This balanced approach mitigates risks while leveraging growth opportunities.
Regular Monitoring
PPF: Monitor interest rates and contributions.
Equity Funds: Regularly review fund performance and market conditions.
Consultation with a Certified Financial Planner
A Certified Financial Planner (CFP) can provide personalized advice, considering your financial goals, risk tolerance, and tax implications. They can help you create a balanced investment strategy that aligns with your objectives.

Conclusion
Investing Rs 1.5 lakhs annually in PPF offers stable, tax-free returns with minimal risk. However, equity mutual funds can provide higher returns, albeit with greater risk and tax implications. A diversified approach, combining both PPF and equity mutual funds, can balance safety and growth. Consulting a CFP will help tailor your investment strategy to meet your financial goals effectively.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |8544 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Aug 16, 2024

Asked by Anonymous - Jul 30, 2024Hindi
Money
HI Anil ji, I am shri, age 51 and my net take home salary is 1.13 lac monthly. My current expenses and investment structure is given below. As salaried person, Retirement will be at the age of 60. Net take home is 1.13 lac after deducting below given contributions. 5600 voluntary pf 6000 employer nps current Investment valuation (in Lac) ppf stock mf nps Epf Total 21.04 5.7 12.84 4.92 17 61.5 The above PPF valuation is of my and spouse account which will be maturing on Mar 2025 Rs.5.4 lac generated in daughters PPF account. Current Monthly Investment 4000 NPS 25000 SIP - nippon india small cap fund-growth 25000 SIP - quant midcap fund- regular growth 20000 SIP - quant small cap fund- regular growth 74000 TOTAL SIP started just one year back and currently PPF is running with minimum contribution to continue the account. Planning to increase SIP amount every year, depend upon increment from company and target is to achieve SIP of 1 lac. Almost 40,000 monthly kept for house hold and other expenses such as Mediclaim, car and bike insurance etc. Don’t have any Loan liability. No life cover and I am the only earning member with dependent of spouse and daughter. Daughter is in 12 std, age 17 and want to pursue Engineering. Future Fees will be paid from MF redemption if sufficient saving is not generated. Expectation to have corpus of 5 Cr on retirement. Do we need to withdraw and divert the PPF amount to MF ? Kindly suggest the Funds. or shall I continue in PPF? is it feasible to achieve 5 cr or what will be the corpus amount after continuing above investment? Secondly, withdrawal from MF to get 50000 per month for monthly expenses. Currently staying in own 1 bhk costing nearly 1.25 cr (No Home Loan) and after 5 years (after completion of daughter’s education) want to purchase 2 bhk flat which will cost around 2.5 – 2.60 cr. The above expectations may sound on higher side, but kindly advise action plan to reach nearby. Thanks in advance.
Ans: Shri, your current financial structure is quite robust. The take-home salary of Rs. 1.13 lakh is well-allocated towards savings and investments. Your monthly investment strategy, especially with SIPs and contributions to NPS, is commendable. You’ve done well to diversify your investments across different asset classes like PPF, stocks, mutual funds, NPS, and EPF.

Evaluating Your PPF and NPS Contributions
The PPF account maturity in March 2025 provides a good opportunity to reassess its role in your portfolio. The current PPF valuation of Rs. 21.04 lakhs (including your spouse’s account) is a safe and low-risk investment. However, with your goal of achieving a Rs. 5 crore corpus, the returns from PPF might not suffice.

Your NPS contributions are beneficial due to the tax benefits under Section 80CCD(1B). However, it’s important to remember that NPS has a long lock-in period until retirement. This could limit your flexibility.

Instead of withdrawing from PPF to invest in mutual funds, you can continue the PPF until maturity and then assess the need based on market conditions. As PPF provides a fixed and risk-free return, it’s wise to balance it with other growth-oriented investments.

SIP Strategy
Your current SIPs in small and mid-cap funds are aligned with higher risk and higher return strategies. Small and mid-cap funds can offer significant growth over the long term but are also more volatile.

As you plan to increase your SIP contributions annually, consider adding some large-cap or balanced funds to your portfolio. These funds provide stability and can cushion your portfolio during market downturns.

Given the one-year duration of your current SIPs, it's essential to regularly review their performance. Consistently monitor the funds, but avoid frequent changes unless there’s a significant underperformance.

Instead of withdrawing from mutual funds for monthly expenses, consider building an emergency fund. You can invest this fund in low-risk instruments that are easily accessible.

Assessing Your Retirement Goal
Your target of achieving a Rs. 5 crore corpus at retirement is ambitious but achievable with disciplined investing. Given the current investment structure, it's feasible to get close to this target. However, it would be wise to regularly reassess your goals and make necessary adjustments to your SIP contributions.

If you maintain and gradually increase your current investment strategy, you’re on the right path. Focus on ensuring that your portfolio remains diversified across different asset classes.

Planning for Daughter's Education
Your plan to fund your daughter’s engineering education through mutual fund redemptions is practical. Given the short timeframe, it's advisable to invest the amount earmarked for her education in safer instruments. You can consider shifting some of the mutual funds into debt funds or liquid funds as the education expenses near.
Real Estate Consideration
While you plan to purchase a 2BHK flat after your daughter’s education, it's essential to evaluate the impact on your overall financial goals. The cost of Rs. 2.5-2.6 crore is significant. It’s crucial to assess whether this investment will impact your retirement corpus goal.

Since you currently stay in your own 1BHK flat, consider whether upgrading to a 2BHK is essential or if the funds could be better used towards your retirement savings.

Insurance and Risk Management
Currently, you lack life insurance, which is a critical aspect, especially as the sole breadwinner with dependents. I strongly recommend getting a term life insurance policy to cover at least 10-15 times your annual income. This will ensure financial security for your family in case of unforeseen circumstances.

Also, evaluate the adequacy of your current Mediclaim policy. Ensure that the sum insured covers potential healthcare costs adequately, considering inflation in medical expenses.

Action Plan to Achieve Financial Goals
Continue and Review SIPs: Continue with your SIPs, but ensure diversification. Add large-cap or balanced funds for stability. Regularly review the performance but avoid frequent changes unless necessary.

Insurance Coverage: Secure adequate life insurance and ensure your health insurance covers inflation-adjusted medical costs.

Retain PPF until Maturity: Let the PPF mature in 2025, then reassess its role in your portfolio. Don’t withdraw now; it offers a risk-free return.

Emergency Fund: Build an emergency fund in liquid or debt instruments instead of relying on mutual funds for monthly expenses.

Real Estate Decision: Reevaluate the need to upgrade to a 2BHK flat. Assess its impact on your retirement goals.

Education Planning: For your daughter’s education, start shifting the required amount into safer instruments like debt funds as the time nears.

Final Insights
Shri, your financial foundation is solid. With the right adjustments and a disciplined approach, you’re well on your way to achieving your financial goals. It’s crucial to regularly reassess your investments and ensure you have the right insurance coverage in place. Continue with your current strategy, but ensure diversification and risk management are prioritized.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Latest Questions
Nayagam P

Nayagam P P  |5380 Answers  |Ask -

Career Counsellor - Answered on May 28, 2025

Asked by Anonymous - May 28, 2025
Career
Hello sir, my daughter got 79563 rank in jee mains.She is also getting COE branch at Thapar..may upgrade to CSE branch. For JAC counselling should we choose DTU ,NSUT electrical branch or IGDTUW ECE.. Which is better in terms of placement Thanks
Ans: With a JEE Main rank of 79,563, the chances of admission through JAC Delhi counselling into top branches like Computer Science Engineering (CSE), Electronics and Communication Engineering (ECE), or Electrical Engineering in premier Delhi colleges are quite low. These colleges—Delhi Technological University (DTU), Netaji Subhas University of Technology (NSUT), Indira Gandhi Delhi Technical University for Women (IGDTUW), Indraprastha Institute of Information Technology Delhi (IIIT-D), and Delhi Skill and Entrepreneurship University (DSEU)—typically have closing ranks much better than 80,000 for popular branches like CSE and ECE.

Generally, CSE and ECE branches close within ranks under 20,000–30,000 in DTU and NSUT, while Electrical Engineering may have slightly relaxed cutoffs but still far below 79,000. IGDTUW is women-only but also highly competitive. DSEU has more seats but lower preference for top branches. A female candidate with rank 79,563 may get admission in less sought-after branches or in later rounds/spot rounds if seats remain vacant, but chances for CSE/ECE/Electrical in top JAC Delhi colleges are slim.

Using JAC Delhi College Predictor tools can provide personalized estimates based on category and gender.

summarise the above in 150 words along with all the names of colleges
summarise the above in 150 words along with all the names of colleges
With a JEE Main rank of 79,563, admission chances through JAC Delhi counselling for top branches like Computer Science and Engineering (CSE), Electronics and Communication Engineering (ECE), or Electrical Engineering are very slim. For the general category, the expected closing ranks for CSE/IT branches at premier Delhi colleges are much lower: Delhi Technological University (DTU) closes around rank 5,200; Netaji Subhas University of Technology (NSUT) and Indira Gandhi Delhi Technical University for Women (IGDTUW) have similar or lower cutoffs; and Delhi Skill and Entrepreneurship University (DSEU) closes around 27,000 for CSE. Electrical and ECE branches generally have higher closing ranks but still well below 79,563—for example, DTU Electrical Engineering closes near 20,000. Other reputed institutes like IIIT Delhi have even tighter cutoffs (CSE around 7,500). Thus, with your rank, securing admission in CSE, ECE, or Electrical branches through JAC Delhi counselling at DTU, NSUT, IGDTUW, DSEU, or IIIT Delhi is highly unlikely. All the best for your daughter's admission and a bright future!

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DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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