SIP vs PPF for Rs 1,40,000/year investment: Which can create a higher corpus in 20 years?
A Systematic Investment Plan (SIP) is a market-linked investment scheme, whereas a Public Provident Fund (PPF) is a non-market-linked investment scheme. Both are quite popular among investors. However, the question remains: which one will generate a higher corpus in 20 years with an annual investment of Rs 1,40,000?
There are various types of investors, but two major ones are risk-averse investors, who do not want to take any kind of risk with their investments, and risk-taking investors, who choose riskier options to maximise their investment strategy. As we already discussed that SIP is a market-linked investment scheme, whereas, PPF is a non-market-linked investment scheme. On that note, let's find out which will generate a higher corpus in 20 years: SIP or PPF.
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(Disclaimer: Our calculations are projections and not investment advice. Do your due diligence or consult an expert for financial planning)
Understanding Systematic Investment Plan (SIP)
It is a method of investing a fixed amount in mutual fund(s). You can invest daily, monthly, quarterly, or yearly in a mutual fund scheme.
Introduction to PPF?
Public Provident Fund is a retirement-centric scheme that individuals also use for their portfolio diversification. It is a tax-advantaged savings scheme backed by the Indian government. It offers guaranteed returns and tax benefits under Section 80C of the Income Tax Act.
SIP minimum investment: How little can you start with?
The minimum amount to invest in an SIP is Rs 100. One can also increase, decrease, or stop their SIP.
How much can you invest in PPF?
The minimum deposit in a financial year is 500, whereas the is Rs 1.5 lakh.
How SIP works?
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 7.1 per cent interest rate compounded yearly.
PPF calculation conditions: Rs 1,40,000/year investment for 20 years
Yearly investment: Rs 1,40,000 (monthly investment Rs 11,666x 12 months)
Time period: 20 years
Rate of interest: 7.1 per cent
PPF: What will be your retirement corpus in 20 years with Rs 1,40,000/year investment?
On a Rs 1,40,000/year investment, the retirement corpus in 20 years will be Rs 62,14,402. The estimated total interest during that time will be Rs 34,14,402.
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 will you get on Rs 11,666 monthly investment for 20 years (hybrid fund)
At 12 per cent annualised growth, the estimated corpus in 20 years will be Rs 1,07,31,056. During that time, the invested amount will be Rs 27,99,840, and capital gains will be Rs 79,31,216.
SIP: What will you get on Rs 11,666 monthly investment for 20 years (equity fund)
At 10 per cent annualised growth, the estimated corpus in 20 years will be Rs 84,46,029. The estimated capital gains will be Rs 56,46,189.
SIP: What will you get on Rs 11,666 monthly investment for 20 years (debt fund)
At 8 per cent annualised growth, the estimated corpus in 20 years will be Rs 66,80,652. The estimated capital gains will be Rs 38,80,812.