SIP Returns vs EPF: Where will you get higher return on Rs 12,500 monthly investment in 12 years; get details
SIP vs EPF Corpus: EPF is a retirement scheme where the EPF subscriber gets an 8.25 per cent compound interest rate on their deposits. EPF subscribers make a monthly contribution to their EPF account from their salary. The employer also contributes the same or a nearly equal amount to the subscriber's EPF. SIP is a method to invest in mutual fund schemes. There are no fixed returns; rather, they are market-linked. An investor invests a fixed amount through SIP every month in a mutual fund scheme.
SIP investment vs EPF: When you want to create a corpus that can fulfil your money-related requirement or want to build it for your retirement, two things are important: you pick the right investment scheme and you get good post tax returns. Then come two other important factors: the monthly investment amount and the duration of investment. While one should start investing early to get years of compounding, they should also invest a substantial amount to build a sizeable corpus by the time they reach their retirement age. There are many schemes to build a large corpus—the Employees' Provident Fund (EPF) and mutual fund SIP investment are two of them. In this write-up, get to know how both of them work, what are post tax returns, and how your Rs 12,500 monthly investment in each of them can grow in 12 years.
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EPF
It is a retirement scheme where the EPF subscriber gets an 8.25 per cent compound interest rate on their deposits. EPF subscribers make a monthly contribution to their EPF account from their salary. The good thing is that the employer also contributes the same or a nearly equal amount to the subscriber's EPF.
EPF
The minimum basic salary to start an EPF account is Rs 15,000, and the minimum contribution to EPF is Rs 1,800 a month. The maximum is 12 per cent of the basic pay and dearness allowance (DA). EPF contributions up to Rs 1.50 lakh a financial year provide tax benefits to EPF account holders following the old tax regime.
EPF
The other advantage is that the interest earned and the EPF maturity amount are also tax-free. One can withdraw their EPF corpus after completing the service of 10 years or at 58 years of age.
Mutual Fund SIP
It is a method to invest in mutual fund schemes. There are no fixed returns; rather, they are market-linked. An investor invests a fixed amount through SIP every month in a mutual fund scheme. The SIP amount can be increased or decreased as per the investment capacity of the investor.
Mutual Fund SIP
The advantage of investing through SIP is that the investor doesn't need to time market as they purchase net asset value (NAV) units of a mutual fund at different rates every investment cycle. So, if the market is high, they will purchase a smaller number of NAVs, but when it is down, they will purchase more.
Mutual Fund SIP
This process is known as rupee cost averaging. Investors with an investment horizon of 5-7 years and above are likely to get good returns through SIP investment. SIP investment also provides compound growth, so the investment can grow faster as it gets older.
SIP Investment vs EPF: Which of them can give higher returns on Rs 12,5000 monthly investment in 12 years?
EPF corpus in 12 years
If we calculate EPF corpus as per the current interest rate of 8.25 per cent, a Rs 12,5000 monthly investment in EPF in 12 years, or a total investment of Rs 18 lakh, can provide an estimated EPF corpus of Rs 31,27,473.88.
SIP corpus
Since there is no fixed return in SIP investment, we are calculating at projected annualised growth rate of 12 per cent, 10 per cent, and 8 per cent in the equity, hybrid, and debt mutual funds, respectively.
SIP corpus at 12% growth in 12 years
In 12 years, estimated long term capital gains will be Rs 20,51,195, and the estimated corpus will be Rs 38,51,195.
SIP corpus at 10% growth in 12 years
In this condition, estimated long term capital gains will be Rs 15,78,860, and the estimated corpus will be Rs 33,78,860 in the 12-year time frame.
SIP corpus at 8% growth in 12 years
If one gets 8 per cent annualised growth on their SIP investment, estimated long term capital gains will be Rs 11,68,470, and the estimated corpus will be Rs 29,68,470.