Return Comparison: PPF or SIP? Which can build larger corpus with Rs 1.5 lakh annual investment?

Choosing between SIP (Systematic Investment Plan) and PPF (Public Provident Fund) can be challenging for investors aiming to build wealth systematically. Both options cater to different financial goals and risk appetites. Here’s a detailed comparison to help you decide.

SIP (Systematic Investment Plan)

A SIP enables investors to invest a fixed amount regularly in mutual funds, taking advantage of market fluctuations and the power of compounding for long-term wealth creation.

How SIP works:

• Fixed amounts are auto-debited from the bank account and invested in mutual funds.
• Investments accumulate units based on the mutual fund's Net Asset Value (NAV).
• Over time, compounding and market growth enhance returns.

Rs 1.5 lakh annual SIP investment for 15 years

Investing Rs 1.5 lakh annually in a SIP for 15 years, with monthly contributions of Rs 12,500, grows Rs 22,50,000 into an estimated Rs 63,07,200, leveraging compounding and market growth.

Key benefits of SIP:

• Low Initial Investment: Start with as little as Rs 500 per month.
• Market Averaging: Reduces market timing risk through staggered investments.
• Discipline: Encourages regular saving and investing habits.

PPF (Public Provident Fund)

The PPF is a government-backed savings scheme offering guaranteed returns, fixed interest rates, and significant tax benefits.

PPF features:

• Interest Rate: 7.1% per annum (compounded annually).
• Investment Limits: Minimum Rs 500; maximum Rs 1.5 lakh per financial year.
• Tenure: 15 years, extendable in 5-year blocks.
• Tax Benefits: Interest earned and maturity amount are tax-free.

Rs 1.5 lakh annual PPF investment for 15 years

Investing Rs 1.5 lakh annually in a PPF for 15 years accumulates Rs 22,50,000 into a guaranteed total of Rs 40,68,209, with Rs 18,18,209 earned as tax-free interest.

Comparison of returns

• SIP: Estimated total value of Rs 63,07,200, leveraging market-linked growth and compounding for higher potential returns.
• PPF: Total value of Rs 40,68,209, offering guaranteed but comparatively lower returns due to fixed interest rates.

When to Choose SIP

• Suitable for investors with a higher risk appetite.
• Ideal for long-term goals benefiting from market-linked growth.
• Offers flexibility to adjust, increase, or pause investments.

When to Choose PPF

• Best for risk-averse individuals seeking guaranteed returns.
• Provides tax-free interest and principal security.
• Ensures financial stability with fixed returns over the long term.

Both SIP and PPF have their advantages and drawbacks. SIP offers higher growth potential but comes with market risks, whereas PPF ensures stability and guaranteed returns. The choice ultimately depends on your financial goals, risk tolerance, and investment horizon.