Both SIP and PPF investment options are popular. However, choosing between these two can be puzzling as each has its benefits. Let’s suppose you are your
friend are in your 30s. Both of you are having a cup of coffee and discussing retirement planning. Both of you are confused about whether to invest in SIP or PPF. You are confident in PPF as it is safe and delivers sure returns. Your friend, on the other hand, is thinking of investing in SIP, anticipating more growth. Wanting to know which one would perform better, both of you decide to invest Rs 90,000 per year for 20 years.
Now it’s time to know who has a larger fund. This comparison will also assist you in determining which option, PPF or SIP, can provide a better return.
What is a Systematic Investment Plan (SIP)?
SIP is a way of investing a fixed amount in mutual funds. Investors can invest on a daily basis, monthly, quarterly, or annually in a mutual fund scheme.
What is PPF?
Public Provident Fund is a government-backed retirement plan that comes with a lock-in period of 15 years, which can later be extended to 5 years block each.
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 will be calculating assuming 8 per cent annualised return (debt fund), 10 per cent (equity fund), and 12 per cent (hybrid fund).
PPF calculation conditions: Rs 90,000/year investment for 20 years
- Yearly investment: Rs 90,000 (monthly investment Rs 7,500x 12 months)
- Time period: 20 years
- Rate of interest: 7.1 per cent
PPF: What will be your retirement corpus for 20 years with Rs 90,000/year investment?
Lock-in period for the PPF account is 15 years. However, investors can extend the tenure of a Public Provident Fund (PPF) investment for any number of times for a block period of 5 years each time beyond the maturity period by submitting Form 4 within one year from the date of maturity.
On a Rs 90,000/year investment, the total corpus in 20 years will be Rs 39,07,000.
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 7,500(90,000/12)
How much can Rs 7,500 monthly investment in SIP build in 20 years (hybrid fund)
At 12 per cent annualised growth, the estimated retirement corpus for 20 years will be Rs 74,19,000. The invested amount will be Rs 18,00,000.
How much can Rs 7,500 monthly investment in SIP build in 20 years (equity fund)
At 10 per cent annualised growth, the estimated retirement corpus in 20 years will be Rs 56,95,000.
How much can Rs 7,500 monthly investment in SIP build in 20 years (debt fund)
At 8 per cent annualised growth, the estimated retirement corpus in 20 years will be Rs 44,18,000.
