SIP vs PPF with Rs 1,00,000/year investment: Which can generate a higher corpus in 20 years?
When you turn 18, you are considered a young adult with new financial responsibilities. You might start thinking about earning money through part-time jobs or side hustles. This is a great time to learn about managing your finances and investing. By starting early, you can build wealth over time and set yourself up for a brighter financial future. Investing early can help your money grow and give you more freedom later in life.
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06:34 PM IST
Let's compare two popular investment options: SIP (Systematic Investment Plan) and PPF (Public Provident Fund). SIP allows you to invest small amounts regularly, but returns can vary based on market performance. PPF, on the other hand, is a government-backed scheme with fixed returns. We will see which one can grow your money more over 20 years if you invest Rs 1,00,000 per year. Which one do you think will give better results?
What is SIP?
A systematic investment plan is a method to invest a fixed amount in mutual funds. Investors can go for daily, monthly, quarterly, or yearly investments in a mutual fund scheme. You can change the investment amount based on your financial circumstances.
What is Public Provident Fund?
PPF is a government-backed scheme that you can also use for portfolio diversification. Deposits up to 1.5 lakh in a year are eligible for tax exemptions under Section 80C of the Income Tax Act.
Minimum investment amount in SIP
The minimum investment amount in SIP is Rs 100. You can also increase, decrease, or stop their SIP.
Minimum and maximum investment amount in PPF
The minimum investment in a year is Rs 500, whereas the maximum investment in a year is Rs 1.5 lakh.
How does SIP work?
In a systematic investment plan, a fixed amount is automatically deducted from your bank account and invested in mutual funds. These investments happen regularly, and you get units based on the fund’s value (NAV).
How does PPF work?
This savings scheme, available at post offices and banks, allows you to make voluntary deposits. The Post Office version offers a 7.1 per cent annual interest rate, compounded yearly.
PPF calculation conditions: Rs 1,00,000/year investment for 20 years
Yearly investment: Rs 1,00,000 (monthly investment Rs 8,333x 12 months)
Period: 20 years
Rate of interest: 7.1 per cent
PPF: What will be your retirement corpus in 20 years with Rs 1,00,000/year investment?
On a Rs 1,00,000/year investment, the retirement corpus in 20 years will be Rs 44,38,859. The estimated total interest will be Rs 24,38,859, and your investment amount will be Rs 20,00,000.
SIP investment conditions
Since there are no fixed returns in SIP investment, we are calculating as per annualised returns of 8 per cent (debt fund), 10 per cent (equity fund), and 12 per cent (hybrid fund). We're also assuming a monthly investment of Rs 12,500(1,50,000/12)
SIP: What will you get on Rs 8,333 monthly investment for 20 years (hybrid fund)
At 12 per cent annualised growth, the estimated corpus in 20 years will be Rs 76,65,171. During that time, the investment amount will be Rs 20,00,000, and capital gains will be Rs 56,65,251.
SIP: What will you get on Rs 8,333 monthly investment for 20 years (equity fund)
At 10 per cent annualised growth, the estimated corpus in 20 years will be Rs 60,32,981. The estimated capital gains will be Rs 40,33,061.
SIP: What will you get on Rs 8,333 monthly investment for 20 years (debt fund)
At 8 per cent annualised growth, the estimated corpus in 20 years will be Rs 47,71,976. The estimated capital gains will be Rs 27,72,056.
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