Return Comparison: SIP or PPF? Which can build larger corpus on Rs 1,25,000 annual investment?
SIP and PPF are popular investment options, but which one builds a bigger corpus on an annual investment of Rs 1,25,000? This comparison breaks down returns, features and suitability for investors.
When choosing between a Systematic Investment Plan (SIP) and the Public Provident Fund (PPF), investors might wonder which investment scheme can generate a higher corpus over time. While SIPs offer market-linked returns and compounding benefits, PPF provides a stable, government-backed return with tax advantages. If you invest Rs 1,25,000 annually in either option, how much will you accumulate? This detailed comparison analyses returns, investment flexibility and risk factors.
What is SIP?
A Systematic Investment Plan (SIP) is a disciplined way of investing in mutual funds, where a fixed amount is invested at regular intervals. It allows wealth accumulation over time with the benefit of compounding.
How Does SIP work?
- A fixed amount is debited from the investor’s bank account at chosen intervals.
- The money is invested in mutual funds, buying units based on the prevailing NAV.
- With each investment, additional units are purchased, leading to compounding returns over time.
Expected returns from SIP
- Monthly investment: Rs 10,420
- Total invested amount: Rs 18,75,600
- Estimated returns: Rs 30,83,605
- Total corpus after investment period: Rs 49,59,205
What is PPF?
The Public Provident Fund (PPF) is a government-backed savings scheme offering fixed returns. It has a lock-in period of 15 years and provides tax benefits under Section 80C.
Key features of PPF
- Interest rate: 7.1% per annum (compounded annually)
- Minimum deposit: Rs 500 per year
- Maximum deposit: Rs 1,50,000 per year
- Investment mode: Lump sum or installments
- Tax benefit: Tax-free interest and deduction under Section 80C
Loan and withdrawal rules for PPF
- Loan available after the third year, up to 25% of the balance.
- Partial withdrawal allowed after 5 years, up to 50% of the lowest balance in the last 4 years.
- Full withdrawal available only after 15 years.
Maturity and extension options
- Account matures after 15 years.
- Options after maturity:
- Withdraw the entire amount.
- Continue earning interest without further deposits.
- Extend the account in blocks of 5 years.
Premature closure conditions
Allowed after 5 years in case of:
- Life-threatening illness of the account holder or dependents.
- Higher education expenses.
- Change in residency status (becoming an NRI).
- A penalty of 1% interest reduction applies on premature closure.
Expected returns from PPF
- Total invested amount: Rs 18,75,000
- Estimated returns: Rs 15,15,174
- Total corpus after investment period: Rs 33,90,174
SIP vs PPF: Which builds a bigger corpus?
- SIP Corpus: Rs 49,59,205
- PPF Corpus: Rs 33,90,174
SIP offers significantly higher returns due to market-linked compounding, whereas PPF provides stable, risk-free returns with tax benefits. The choice depends on risk appetite and financial goals.