SIP vs PPF: Rs 1,20,000/year investment for 30 years, which can build a higher retirement corpus
Deciding where to invest between two popular investment options that may have the potential for huge wealth creation sounds confusing. Just like the systematic investment option (SIP) and Public Provident Fund (PPF). These schemes are quite popular among investors, and it may be obvious to get confused about where to invest. Thus, let’s find out which can help you generate a larger corpus, SIP or PPF.
If you are a beginner or a fresh investor who is confused between whether to invest in a PPF, as it is a government-backed investment scheme that guarantees returns, or to go with SIP, which is a market-linked investment with no such guarantee of return but quite a high chance of building massive wealth. Then, going through this article is worth your time. Here, we will compare SIP vs PPF to find out which can generate a higher corpus on an Rs 1,20,000/year investment for a 30-year investment period. Let’s find out.
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DISCLAIMER: Investments carry risk; seek professional guidance
What is SIP in a mutual fund?
A Systematic Investment Plan is an investment scheme where you can invest a fixed amount in mutual fund(s). You can go for daily, monthly, quarterly, or yearly investment in a mutual fund scheme.
What do you understand by PPF?
Public Provident Fund 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.
What is the minimum amount to invest in an SIP?
The minimum amount to invest in an SIP is Rs 100. You can also increase, decrease, or stop their SIP.
What is the minimum and maximum amount to invest in PPF?
The minimum deposit in a year is Rs 500, whereas the maximum yearly deposit is Rs 1.5 lakh.
Flexibility to adjust your SIP
One of the benefits of SIPs is their flexibility. You can:
Increase your investment amount at any time
Decrease your investment amount if needed
Stop your SIP altogether
How does SIP work?
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 scheme, run by post offices and banks, offers voluntary contributions to its account holders. Post Office offers a 7.1 per cent interest rate compounded yearly.
PPF calculation conditions
Yearly investment: Rs 1,20,000 (monthly investment Rs 10,000x 12 months)
Period: 30 years
Rate of interest: 7.1 per cent
PPF: What will be your retirement corpus in 30 years with Rs 1,20,000/year investment?
On a Rs 1,20,000/year investment, the retirement corpus in 30 years will be Rs 1,23,60,728. The estimated total interest during that time will be Rs 87,60,728.
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 12,083(1,45,000/12)
SIP: What will you get on Rs 10,000 monthly investment for 30 years (hybrid fund)
At 12 per cent annualised growth, the estimated corpus in 30 years will be Rs 3,08,09,732. During that time, the invested amount will be Rs 36,00,000, and capital gains will be Rs 2,72,09,732.
SIP: What will you get on Rs 10,000 monthly investment for 30 years (equity fund)
At 10 per cent annualised growth, the estimated corpus in 30 years will be Rs 2,07,92,927. The estimated capital gains will be Rs 1,71,92,927.
SIP: What will you get on Rs 10,000 monthly investment for 30 years (debt fund)
At 8 per cent annualised growth, the estimated corpus in 30 years will be Rs 1,41,76,132. The estimated capital gains will be Rs 1,05,76,132.