SIP vs Post Office Schemes — Certainty Against Horizon

Several distinct schemes rather than one product, and they are not interchangeable.

There is a recurring deposit for monthly saving, a time deposit for a lump sum over a chosen tenure, a monthly income scheme that pays out periodically, savings certificates that mature at the end of a term, a scheme for senior citizens, the public provident fund, and the scheme for a daughter. Each has its own tenure, its own limits and its own rules on early withdrawal.

We have covered two of them separately, on SIP versus PPF and SIP versus Sukanya Samriddhi, because those two have features the rest do not.

You are told the terms before you commit. That is not a small thing and no mutual fund offers it.

For a known expense on a known date, that certainty is worth more than any argument about growth. A household that needs a specific sum for a specific purpose in three years should not be holding that money anywhere it might be lower on the day, whatever anybody says about long-term averages.

The backing is also sovereign, and for many households that is the reason rather than a footnote. We are not going to argue with it, because for the money in question it is the correct instinct.

One correction worth making, because it changes how a long holding should be understood.

The rates on these schemes are reviewed and reset periodically. For a scheme where the rate applies for the full term from the date you invested, your arrangement is settled. For schemes where the applicable rate can change during the holding, a twenty-year plan is not one fixed arrangement but a series of them.

People describe these as fixed for life and then are surprised when the figure changes. It is worth knowing which of the two you are in for each scheme you hold, and the post office will tell you if you ask.

Not in a bad outcome. In money sitting in the wrong place for its date.

The commonest arrangement we see here is a household with every rupee in deposits and certificates, including money that is not needed for eighteen years. That money is being kept certain for a period during which certainty is not what it needed, and the cost of that is invisible because nothing ever shows a fall. Our page on inflation and your savings is about that specific invisibility.

The other mismatch runs the other way, and we see it too: money needed next year sitting in an equity scheme because somebody was told deposits are a poor idea. Both are the same error with the labels swapped.

Beyond the certainty question, four things separate them in daily use.

• Access. A post office scheme has a tenure and rules about coming out early. An open-ended mutual fund can be redeemed when you choose, subject to exit load and settlement.
• Amount flexibility. Raising a monthly contribution as income rises is straightforward with a SIP, as our page on the step-up SIP covers, and generally means a fresh account at the post office.
• Where it happens. A branch visit against an instruction that runs by itself, which for a working household in a smaller town is a real difference.
• Tax treatment differs by scheme on both sides, and it is worth confirming for the specific one rather than assuming. We are distributors and not tax advisers, and our page on mutual fund taxation covers our side of it.

One practical point, and it comes from sitting with families after somebody has died rather than from any comparison of features.

Post office holdings are frequently the hardest part of an estate to reconstruct. Certificates bought years ago in a different town, a passbook nobody can find, an account at a branch the family did not know about. There is no single statement that lists everything a person held across schemes and branches, so the family is searching rather than reading.

On the mutual fund side, one request against a PAN produces a statement covering every folio across fund houses, which is what our page on the consolidated account statement describes. That is a genuine practical advantage and it has nothing to do with returns.

Whatever you hold and wherever, the fix is the same and takes an evening: write down what exists and where, check the nominee on each, and tell one person in the family that the list exists. Our guide on what happens afterwards explains why that hour is worth more than most investment decisions.

Not a switch. A split by date, which usually leaves most of what a household already has exactly where it is.

Money for the next three years, and the buffer, stays in the certain instruments. That is what they are for and it is the part people get right without help, as our page on building an emergency fund sets out.

Money for something ten or fifteen years away is the part worth reconsidering, and even then the sensible move is usually to direct new savings differently rather than to break anything that already exists. Breaking a running scheme to start something else is rarely the right first step, and we say so often.

If a household wants to keep everything where it is, that is a legitimate choice made with the facts, and we would rather that than a change made because somebody was made to feel behind. To talk it through, get in touch, and SIP versus recurring deposit covers the monthly comparison in more detail.