Return Comparison: Rs 1.2 lakh in SIP vs Rs 1.2 lakh in PPF investment in a year; which can create larger corpus?

When considering where to invest Rs 1.2 lakh annually, two popular options often stand out: Systematic Investment Plans (SIPs) in mutual funds and the Public Provident Fund (PPF). Let’s evaluate their returns, features, and potential to build wealth.

SIP: High Returns with Market-Linked Risks

A Systematic Investment Plan (SIP) is a disciplined approach to investing in mutual funds. It involves contributing a fixed amount at regular intervals, enabling rupee cost averaging and compounding returns over time.

How It Works:

The chosen amount is auto-debited from the investor’s bank account and invested in the selected mutual fund.
Units are allocated based on the Net Asset Value (NAV) on the transaction date.
Over time, reinvested returns and market growth can significantly increase the value of the investment.

Example of SIP Returns:

• Annual investment: Rs 1.2 lakh (Rs 10,000 monthly).
• Investment period: 15 years (total Rs 18 lakh).
• Estimated returns: Rs 32,45,760.
• Final corpus: Rs 50,45,760.

While SIPs carry market risks, they often outperform fixed-income instruments in the long run, offering higher returns.

PPF: A Secure Government-Backed Option

The Public Provident Fund (PPF) is a long-term savings scheme offering a fixed interest rate. It is ideal for risk-averse investors seeking steady returns with tax benefits.

Key Features:

Interest rate: 7.1% per annum (compounded yearly).
Tenure: 15 years, extendable in blocks of 5 years.
Investment range: Rs 500 to Rs 1.5 lakh annually.
Tax benefits: Contributions and interest earned are exempt under Section 80C of the Income Tax Act.

Example of PPF Returns:

• Annual investment: Rs 1.2 lakh.
• Investment period: 15 years (total Rs 18 lakh).
• Total interest earned: Rs 14,54,567.
• Maturity value: Rs 32,54,567.

PPF offers consistent growth and guaranteed returns but lacks the higher earning potential of market-linked investments.