SIP vs PPF: Rs 1 lakh annual investment for 15 years – Which can offer a higher corpus?

When planning long-term investments, two popular options often come to mind: SIP (Systematic Investment Plan) and PPF (Public Provident Fund). This article compares these avenues based on potential returns, features and suitability for investors.

SIP (Systematic Investment Plan)

SIP enables investors to systematically invest a fixed amount in mutual funds, leveraging market fluctuations for potentially higher returns over time.

How SIP works:

• Fixed amounts are auto-debited from the investor’s bank account and invested in mutual funds.
• Investments accumulate units based on the fund's Net Asset Value (NAV).
• Returns benefit from compounding and market dynamics, particularly for long-term investors.

SIP Returns on Rs 1 lakh annually for 15 years:

• Monthly Investment: Rs 8,350
• Total Invested Amount: Rs 15,03,000
• Estimated Returns: Rs 27,10,210
• Total Value: Rs 42,13,210

Benefits of SIP:

• Low Initial Investment: Start with as little as Rs 500 per month.
• Market Averaging: Reduces the risk of timing the market.
• Disciplined Approach: Encourages consistent saving and investing habits.

PPF (Public Provident Fund)

PPF is a government-backed savings scheme offering guaranteed returns with tax benefits under Section 80C of the Income Tax Act.

Key Features of PPF:

• 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 blocks of 5 years.
• Tax Benefits: Interest earned is entirely tax-free.

PPF Returns on Rs 1 lakh annually for 15 Years:

• Yearly Investment: Rs 1,00,000
• Total Invested Amount: Rs 15,00,000
• Estimated Returns: Rs 12,12,139
• Total Value: Rs 27,12,139

Comparison of returns:

• SIP: Offers a higher potential corpus of Rs 42,13,210, driven by market-linked growth and compounding.
• PPF: Provides a guaranteed but lower corpus of Rs 27,12,139 due to fixed interest rates.

When to choose SIP:

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

When to choose PPF:

• Best for risk-averse investors seeking guaranteed returns.
• Suitable for tax-free interest and principal security.
• Ensures long-term financial stability with fixed returns.

Choosing between SIP and PPF depends on your financial goals, risk tolerance, and investment horizon. SIPs can create a significantly higher corpus due to their market-linked nature, while PPF offers assured returns for conservative investors. Evaluate your priorities and make an informed decision.