Is PF better than Mutual Funds?

Provident fund (PF) and Mutual fund (MF) are two such investment options available to investors in India. However, these two products should not be compared as they serve different purposes.

Which is better for retirement? provident fund or mutual fund

Firstly, let us understand the basic meaning of these Funds. A mutual fund is a company that brings together money from many people and invests it in stocks, bonds, government securities, etc. A Provident fund is a retirement savings plan for salaried employees who work for a company with 20 or more employees. Here is the basic difference between these funds -

• The return generated from a mutual fund scheme is dependent on the performance of the underlying asset where the turn on PF is computed on an annual basis (decided by the government of India).

• The tax treatment of mutual funds depends upon the kind of scheme and period of investment.

• Mutual funds have no definite fixed tenure of holding, investors can choose to exit by selling their mutual funds units. Whereas Provident fund has fixed investment tenure.

• Mutual funds offer a high degree of liquidity. Whereas Provident funds are long-term deposit options with a low degree of liquidity.

• The main objective of a mutual fund is to accumulate the investment of each investor in a pool and cumulatively invest the amount in a financial instrument, to generate high returns. Whereas the main goal of a provident fund is to create a long-term saving corpus, over a long tenure.

PF is for fixed tax-free income and has no volatility except for a change in the rate every year. Mutual fund, on the other hand, provides an option for a debt fund as well an equity investment.

Is NPS better than Mutual Funds?

The NPS and Mutual Funds themes are both market-linked and have several similar benefits, yet there are some significant differences between the two and also specific individual advantages.

Retirement: NPS or Mutual Funds

The National Pension Scheme (NPS) is a retirement saving scheme launched by the government of India to secure the life of an individual financially after retirement. NPS is a long-term investment plan that helps to secure long-term goals.

Mutual funds are formed by money pooled by a huge number of investors having common investment objectives. This money is then invested in bonds, equity, government securities, etc. It provides different plans to invest in based on your long-term and short-term financial goals.

Here is the basic difference between these funds –

• The minimum investment amount of NPS is Rs 6000. Whereas the minimum investment amount of MF is Rs 500. The Lock-in period of an NPS is till retirement whereas in MFs do not have a lock-in period other than ELSS funds.

• Flexibility is low in the case of NPS whereas MF has high flexibility.

• In NPS only 20 % of the total amount can be withdrawn whereas in the case of MF it can be redeemed anytime.

• In the case of NPS, up to Rs 150,000 with additional benefits of 50,000 rupees tax benefit is availed whereas, in a mutual fund, ELSS exempts tax to investments up to Rs 150,000.

Both NPS and Mutual funds are great options, NPS is great for long-term investments and a much safer option, mutual funds help in achieving your short-term and long-term goals.

If you are looking for your retirement plan and securing your post-retirement life then you should have a combination of NPS mutual funds.

How to select best Mutual Funds

Selecting the best mutual fund is not easy as there are various mutual funds. But to invest in any financial assets like stocks, bonds, mutual funds, etc., one has to dedicate their time to do a thorough research of all the options available to invest and then choose which asset or fund best set their goals, needs, and objectives.

How to select best Mutual Funds

Most investors rely on mutual fund rankings, stars, and ratings. However, this is one of the parameters to choose a Mutual Fund, depending solely on the rating can mislead because there are lots of other parameters to be considered before investing.

Here are a few points or criteria one should consider and follow before investing in Mutual Funds

Investment Objective

An investment objective is a set of goals that determines an investor's financial portfolio. The investment objective helps in generating income and growth over time.

Risk appetite

The term risk appetite refers to the maximum amount of loss that you, as an investor, are ready to take.

Time horizon of investment

This term refers to the time an investor would invest his/her money in mutual funds. If the time horizon is less than 3 years, you should prefer investing money in Debt Mutual Funds and if the time horizon is more than 3 years, you should invest money in balanced and Equity funds.

Comparison of the funds

For choosing the right fund, you must compare the like-to-like mutual funds. This comparison especially returns must be compared on a five-year basis for an equity fund and a yearly basis for a debt fund.

Fund manager’s Experience

Another important factor to be considered while selecting a mutual fund is the performance of its fund manager and how long he/she has been in this wheel. An investor should look at the fund manager’s experience and how he has managed current funds or funds managed in the past by him/her.

An investor can select the most suitable mutual fund scheme if they research thoroughly and work according to the above-mentioned criteria.