Return Comparison: SIP vs PPF – Which investment can build larger corpus with Rs 9,500 annually?

When it comes to investing Rs 9,500 annually, Systematic Investment Plans (SIPs) in mutual funds and the Public Provident Fund (PPF) are two popular options. Each has unique features and potential returns, catering to different investor needs.

Here’s a comparative analysis of their performance to help investors make an informed decision.

SIP: Higher Returns with Market-Linked Risks

SIPs are a disciplined investment method in mutual funds, leveraging rupee cost averaging and the power of compounding. This option is ideal for investors comfortable with market volatility and aiming for long-term wealth creation.

Key Features of SIPs:

• Fixed monthly contributions are automatically deducted from the investor’s bank account.
• Units are purchased based on the Net Asset Value (NAV) at the time of transaction.
• Returns depend on market performance and reinvested earnings.

Example of SIP Returns:

• Monthly Investment: Rs 790
• Total Investment (15 years): Rs 1,42,200
• Estimated Returns: Rs 2,56,415
• Total Value: Rs 3,98,615

While SIPs offer the potential for significant wealth creation, they come with market-linked risks, making them better suited for those with a higher risk appetite.

PPF: A Risk-Free Government-Backed Option

The PPF is a long-term savings scheme offering fixed interest rates and guaranteed returns. Backed by the government, it is a secure option for risk-averse investors seeking steady growth and tax benefits.

Key Features of PPF:

• Interest Rate: 7.1% per annum (compounded annually).
• Tenure: 15 years, extendable in 5-year blocks.
• Investment Range: Rs 500 to Rs 1.5 lakh annually.
• Tax Benefits: Contributions, interest, and maturity proceeds are tax-exempt under Section 80C.

Example of PPF Returns:

• Annual Investment: Rs 9,500
• Total Investment (15 years): Rs 1,42,500
• Estimated Returns: Rs 1,15,153
• Total Value: Rs 2,57,653

While PPF ensures consistent and risk-free returns, its growth potential is limited compared to market-linked options like SIPs.

• SIP Advantage: Offers higher potential returns, suitable for investors willing to accept market risks.
• PPF Advantage: Provides guaranteed returns and tax benefits, ideal for risk-averse individuals.