SIP vs PPF with Rs 1,40,000/year investment: Which can generate a higher corpus in 30 years?
The Systematic Investment Plan (SIP) and Public Provident Fund (PPF) are two popular investment schemes. If you're a beginner confused about where to invest to generate a higher corpus, this article can help clear your confusion. SIP is a market-linked investment scheme, whereas PPF is a non-market-linked investment scheme. Let's compare them to find out which one can generate a higher corpus with a yearly investment of ₹1,40,000 over 30 years.
SIP vs PPF: When planning for retirement, you can consider two primary options: market-linked investments through SIP, and non-market-linked investments like the Public Provident Fund (PPF). While mutual funds carry risk with no guaranteed returns, PPF offers safe and guaranteed returns. The key to success lies in regular investment and patience. On that note, let’s find out if you invest Rs 1,40,000 annually for 30 years, which option can build a larger fund - SIP or PPF? Let's find out.
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Understanding Systematic Investment Plan (SIP)?
SIP (Systematic Investment Plan) allows individuals to invest a fixed amount in mutual funds at regular intervals, such as daily, weekly, monthly, quarterly, or yearly, in a chosen mutual fund scheme.
What is Public Provident Fund (PPF)?
The Public Provident Fund (PPF) is a government-backed retirement savings scheme that offers tax benefits under Section 80C of the Income Tax Act, allowing investments to be eligible for tax deductions.
What is minimum SIP investment amount?
The minimum investment amount for mutual funds varies across schemes, with some funds having as low as Rs 100 as the minimum investment requirement, while others may have higher minimums.
What is minimum and maximum investment amount in PPF?
The minimum deposit in a year is Rs 500, whereas the maximum limit is Rs 1.5 lakh.
How does SIP work?
Investors 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, the 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 1,40,000/year investment for 30 years
Yearly investment: Rs 1,40,000 (monthly investment Rs 11,666x 12 months)
Time period: 30 years
Rate of interest: 7.1 per cent
PPF: What will be your retirement corpus in 30 years with Rs 1,40,000/year investment?
On a Rs 1,40,000/year investment, the retirement corpus in 30 years will be Rs 1,44,20,850. The estimated total interest during that time will be Rs 1,02,20,850, and the invested amount during that time will be Rs 42,00,000.
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 11,666(1,40,000/12)
SIP: What you can get on Rs 11,666 monthly investment for 30 years (hybrid fund)
At 12 per cent annualised growth, the estimated corpus in 30 years will be Rs 3,59,42,633. During that time, the invested amount will be Rs 41,99,760, and estimated capital gains will be Rs 3,17,42,873.
SIP: What you can get on Rs 11,666 monthly investment for 30 years (equity fund)
At 10 per cent annualised growth, the estimated corpus in 30 years will be Rs 2,42,57,029. The estimated capital gains will be Rs 2,00,57,269.
SIP: What you can get on Rs 11,666 monthly investment for 30 years (debt fund)
At 8 per cent annualised growth, the estimated corpus in 30 years will be Rs 1,65,37,876. The estimated capital gains will be Rs 1,23,38,116.