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.
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.