SIP vs PPF: By investing Rs 1.5 lakh annually, how much wealth can you expect to build in 15 years?
SIP vs PPF: Whether you are a salaried employee or an individual, building a substantial corpus for your retirement is crucial. So, if you are considering long-term investment options then mutual funds SIPs and Public Provident Funds (PPF) both are good options. How much corpus you will generate as the interest rate for each scheme is different? Understand through calculations
SIP vs PPF: Whether you are a salaried employee or an individual, building a substantial corpus for your retirement is crucial. From short-term to long-term, there are many investment options available in the market. However, if you are considering long-term investment options then mutual funds SIPs and Public Provident Funds (PPF) both are good options.
PPF has a maturity period of 15 years and you can invest up to Rs 1.5 lakh per year. In contrast, SIP allows you to invest any amount and continue for any number of years. But the key difference between the two is that PPF is a government-sponsored scheme that guarantees returns, whereas SIP is market-linked which means that returns depend on market performance.
So, if you invest Rs 1.5 lakh per year for 15 years in both PPF and SIP, how much corpus you will generate as the interest rate for each scheme is different? PPF offers an interest rate of 7.1 per cent while the average long-term return from SIP is 12 per cent. Let's calculate -
SIP Investment: Your Total Contribution Over 15 Years
According to the SIP calculator, over 15 years, your total investment will amount to Rs 22,50,000 i.e., Rs 12,500 per month.
SIP Investment: Expected Capital Gain at 12% Annual Return
Assuming an average annual return of 12 per cent, your expected capital gain after 15 years will be Rs 40,57,200.
SIP Investment: Total Amount Received
Adding the two, your corpus will grow to approximately Rs 63,07,200 by the end of 15 years.
PPF Investment: Your Total Contribution Over 15 Years
According to the PPF calculator, over 15 years, your total investment will amount to Rs 22,50,000.
PPF Investment: Total Interest at 7.1% Annual Return
At 7.1 per cent annualised return, your total money received as interest after 15 years will be Rs 18,18,209.
PPF Investment: Total Amount Received
Adding the two, your corpus will grow to approximately Rs 40,68,209 by the end of 15 years.
What if you want to invest in PPF for more than 15 years?
If you wish to continue investing in PPF beyond the 15-year term, you can extend your investment in blocks of 5 years.
What to do to continue investing in PPF?
To do this, submit an application to the post office where your PPF account is held before the completion of the 1-year maturity period. You’ll also need to fill out and submit a form to extend the account.
SIP Investment: Important Note
SIP is a market-linked scheme, so returns are not guaranteed. The 12 per cent return mentioned above is an estimate, and actual returns may vary depending on market conditions.
SIP
Despite the market risks, SIP is often considered a good option for wealth creation, as it benefits from rupee cost averaging, which helps mitigate losses. However, keep in mind the inherent risks of investing in SIP and plan accordingly.