SIP vs PPF with Rs 1,50,000/year investment: Which can generate a higher corpus in 26 years?

SIP is a process of investing a fixed amount regularly in mutual funds. Individuals can invest daily, monthly, quarterly, or yearly in a mutual fund scheme. Some mutual funds allow investors to invest with as little as Rs 100. Whereas, Public Provident Fund is a government-backed retirement scheme that is eligible for tax deductions under Section 80C of the Income Tax Act. PPF offers guaranteed returns as they are backed by the government. If you were wondering where to invest between these two investment options. Let’s find out by comparing the investment amount of Rs 1,50,000/year for 26 years period.

What is minimum amount to invest in SIP?

The minimum amount to invest in every mutual fund varies. Thus, there is no definite minimum investment amount, but some funds offer a minimum investment amount as small as Rs 100.

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What is minimum and maximum amount to invest in PPF?

The minimum deposit in a year is Rs 500, whereas the maximum limit in a year is Rs 1.5 lakh.

How does SIP work?

• Investors can select a mutual fund that aligns with their investment goals and risk tolerance.
• Once a scheme is chosen, an SIP is set up with a specific investment amount and frequency (e.g., monthly, quarterly).
• The agreed-upon SIP amount is automatically deducted from the investor's bank account at the pre-defined intervals.
• The deducted amount is invested by the fund manager in the chosen mutual fund scheme, resulting in a specific number of units (or shares) being allocated to the investor.
• The value of these units increases as the fund's Net Asset Value (NAV) increases, leading to growth in the investor's SIP investment over time.
• Investors can choose to withdraw their accumulated wealth at the end of the SIP tenure or at periodic intervals.

How does PPF work?

• You can start with a minimum deposit of Rs 500 per financial year.
• Maximum Deposit: The maximum annual deposit limit is Rs 1.5 lakh.
• Flexibility: You can deposit in a lump sum or installments.
• Tax Benefits: Deposits are tax-deductible under Section 80C of the Income Tax Act.

Interest rate in PPF

Currently Public Provident Fund is offering an interest rate of 7.1 per cent.

Annualised return

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).

PPF calculation conditions: Rs 1,50,000/year investment for 26 years

Yearly investment: Rs 1,50,000 (monthly investment Rs 12,500x 12 months)
Time period: 26 years
Rate of interest: 7.1 per cent

PPF: What will be your retirement corpus in 26 years with Rs 1,50,000/year investment?

On a Rs 1,50,000/year investment, the retirement corpus in 26 years will be Rs 1,12,00,534. The estimated total interest during that time will be Rs 73,00,534. The investment amount will be Rs 39,00,000.

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 you can get on Rs 12,500 monthly investment for 26 years (hybrid fund)

At 12 per cent annualised growth, the estimated corpus in 26 years will be Rs 2,39,90,473. During that time, the invested amount will be Rs 39,00,000, and estimated capital gains will be Rs 2,00,90,473.

SIP: What you can get on Rs 12,500 monthly investment for 26 years (equity fund)

At 10 per cent annualised growth, the estimated corpus in 26 years will be Rs 1,72,51,451. The estimated capital gains will be Rs 1,33,51,451.

SIP: What you can get on Rs 12,500 monthly investment for 26 years (debt fund)

At 8 per cent annualised growth, the estimated corpus in 26 years will be Rs 1,25,06,756. The estimated capital gains will be Rs 86,06,756.

Also Read: Rs 6,000 SIP Vs Rs 6,00,000 Lump Sum: Which can generate a higher corpus in 30 years?