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Both the PPF and SIPs are popular investment instruments for long-term wealth accumulation.
PPF offers steady returns, while SIPs come with market-linked growth. (Representative Image)
Long-term wealth creation needs thorough planning and consistent investment. For investors, looking forward to long-term wealth accumulation, mutual fund Systematic Investment Plans (SIPs) and Public Provident Fund (PPF) are the two most popular options. While SIPs offer market-linked returns, government-backed PPF scheme ensures secure growth of your money.
Both investment instruments are popular choices among Indian instruments for long-term goals, but they differ significantly in terms of returns, risks, tenure and other aspects.
Choosing between the two should be based on the investment goal, risk appetite and tenure as per the financial position of the investor. While SIPs allow better flexibility in terms of investment amount and tenure, PPF comes with a fixed lock-in period. Investors can choose the tenure and amount in SIP schemes as per their needs and ability to invest money every month. There is no upper limit to the amount you can invest in an SIP scheme. On the other hand, under PPF, the maximum deposit is capped at Rs 1.5 lakh per annum.
Investors can start their SIP journey with a minimum sum as low as Rs 500. On the other hand, the minimum amount to invest in the Public Provident Fund is Rs 500 per financial year.
The PPF provides a fixed interest rate of 7.1 per cent per annum, whereas market-linked SIPs are subject to risks and fluctuations and therefore come with no fixed returns on investments. However, the recent market trends indicate equity mutual fund SIPs offer an average return of 12-14 per cent per annum.
SIP vs PPF: Investing Rs 1,25,000 Per Annum For 10 Years
If you are planning to invest Rs 1,25,000 per annum for 10 years, choosing between the SIP and PPF for this investment should be decided based on your risk appetite and financial goals.
The government-backed PPF could be a suitable choice for risk-averse investors looking for steady returns through a secure scheme. On the other hand, SIPs could be a suitable choice for investors eyeing high returns from a market-linked instrument despite the risks.
Let’s see how your investment could grow in 10 years under both schemes:
PPF Investment:
Amount: Rs 1,25,000 per annum
Interest Rate: 7.1%
Tenure: 15 Years
Total Investment: Rs 18,75,000
Estimated Returns: Rs 15,15,174
Total Corpus: Rs 33,90,174
Here, the investments and total corpus have been calculated for a tenure of 15 years, as per the lock-in period under the PPF scheme.
SIP Investment:
Amount: Rs 1,25,000 per annum
Interest Rate: 12%
Tenure: 10 Years
Total Investment: Rs 12,50,000
Estimated Returns: Rs 12,06,823
Total Corpus: Rs 24,56,823
Here, mutual fund SIP clearly emerges more rewarding as your corpus fund would grow into more than Rs 24.5 lakh in 10 years, and in 15 years, the amount would grow into more than Rs 52 lakh. On the other hand, the PPF investments would grow into nearly Rs 34 lakh in 15 years. However, choosing an option between PPF and SIPs should depend on your risk appetite and financial objectives.
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