Return Comparison: Rs 1.3 lakh in SIP vs Rs 1.3 lakh in PPF investment in a year; which can create larger corpus?

When planning to invest Rs 1.3 lakh annually, two popular options often dominate the conversation: Systematic Investment Plans (SIPs) in mutual funds and the Public Provident Fund (PPF). Both offer unique advantages, but which one can help you create a larger corpus? Let’s compare their returns and features to find out.

SIP: High returns with market-linked risks

A Systematic Investment Plan (SIP) is a disciplined approach to investing in mutual funds. It involves regular contributions, enabling benefits like rupee cost averaging and the power of compounding.

How It Works

• A fixed amount is auto-debited from the investor’s bank account and invested in the chosen 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 investment’s value.

Example of SIP Returns:

• Monthly investment: Rs 10,850
• Invested amount: Rs 19,53,000
• Total interest: Rs 35,21,650
• Maturity value: Rs 54,74,650

While SIPs come with market risks, they have historically outperformed fixed-income instruments over the long term, making them attractive for wealth creation.

PPF: A secure government-backed option

The Public Provident Fund (PPF) is a long-term savings scheme ideal for risk-averse investors. It provides steady returns, tax benefits, and a secure investment option backed by the government.

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:

• Invested amount: Rs 19,50,000
• Total interest: Rs 15,75,781
• Maturity value: Rs 35,25,781

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

SIP vs PPF

SIPs can deliver higher returns for investors willing to take on market risks, making them ideal for long-term goals. On the other hand, PPF is a safer choice for those prioritizing security and tax benefits. The decision ultimately depends on your financial goals, risk tolerance, and investment horizon.