PPF Or SIP: How ₹70,000 Annual Investment Grows Over 15 Years

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NP English
Thu, 23 Jan 2025 11:08:03 IST
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Planning for retirement is an essential step for achieving long-term financial independence. Whether you are a salaried professional or self-employed, securing your future with a substantial retirement corpus is crucial. Among the various investment options available, Public Provident Funds (PPF) and Systematic Investment Plans (SIPs) remain two of the most popular long-term choices. While PPF is a government-backed scheme offering guaranteed returns, SIPs are market-linked and provide the potential for higher earnings based on market performance. Let’s delve into how these two options fare when investing ₹70,000 annually over 15 years.

What is SIP?
A Systematic Investment Plan (SIP) allows investors to regularly invest in mutual funds, typically monthly or quarterly, based on their financial capacity. SIPs are market-linked, and their returns are influenced by the performance of underlying assets such as equities or bonds. Historically, SIPs have provided an average annual return of around 12%, making them an attractive choice for individuals willing to take moderate risks for potentially higher rewards.

What is PPF?
The Public Provident Fund (PPF) is a government-backed savings scheme that offers a fixed interest rate. The maximum annual investment allowed is ₹1.5 lakh, and the maturity period is 15 years. With an interest rate of 7.1% per annum (as of the latest updates), PPF is a reliable and low-risk investment option suitable for conservative investors who prioritise security over higher returns.

Comparing SIP and PPF: How Much Can You Earn in 15 Years?

SIP Investment Calculation
If you invest ₹70,000 annually in an SIP, your total investment over 15 years will amount to ₹10,50,000. Assuming an average annual return of 12%, the power of compounding will significantly enhance your returns. By the end of 15 years, your total corpus would grow to approximately ₹29,43,192. Out of this, ₹18,93,252 would be your capital gains.

PPF Investment Calculation
For a similar annual investment of ₹70,000 in a PPF account, the total contribution over 15 years would also be ₹10,50,000. With a fixed annual interest rate of 7.1%, the total interest earned would amount to ₹8,48,498. Thus, the final corpus at the end of 15 years would be approximately ₹18,98,498.

Year-by-Year Growth Comparison

SIP Growth Summary
  • Year 1: Total investment ₹69,996; maturity value ₹74,717
  • Year 5: Total investment ₹3,49,980; maturity value ₹4,81,143
  • Year 10: Total investment ₹6,99,960; maturity value ₹13,55,234
  • Year 15: Total investment ₹10,50,000; maturity value ₹29,43,192
    • PPF Growth Summary
  • Year 1: Total investment ₹70,000; year-end balance ₹74,970
  • Year 5:
    • Total investment ₹3,50,000; year-end balance ₹4,31,995
  • Year 10: Total investment ₹7,00,000; year-end balance ₹10,40,725
  • Year 15: Total investment ₹10,50,000; year-end balance ₹18,98,498
    • Key Considerations
  • Risk and Returns: SIPs are market-linked, meaning returns are not guaranteed and can vary depending on market performance. However, they offer the potential for higher returns compared to PPF. PPF provides guaranteed returns but at a lower fixed interest rate.
  • Liquidity: SIP investments in mutual funds are more liquid, allowing withdrawals based on fund-specific exit load rules. PPF, on the other hand, has a lock-in period of 15 years, with limited withdrawal options before maturity.
  • Tax Benefits: Both SIPs and PPF offer tax-saving advantages. Contributions to PPF are tax-deductible under Section 80C of the Income Tax Act, and the maturity amount is tax-free. For SIPs, investments in ELSS (Equity Linked Savings Schemes) are eligible for tax deductions under Section 80C, but capital gains above ₹1 lakh are taxed at 10%.
  • Investment Discipline: SIPs encourage regular investments, fostering financial discipline. Similarly, PPF’s long-term nature ensures consistent savings over time.
    • Which Option Should You Choose?
    Choosing between SIP and PPF depends on your financial goals, risk appetite, and investment horizon. If you prioritise safety and guaranteed returns, PPF is the ideal choice. However, if you are comfortable with moderate risk for the potential of higher returns, SIPs may better suit your needs.

    Both SIP and PPF are excellent long-term investment options with unique advantages. SIPs offer the potential for significant wealth creation but come with market risks, while PPF ensures steady and secure growth of your funds. By understanding the features of both, you can make an informed decision that aligns with your financial goals.

    (Note: Our projections are estimates and should not be considered as financial advice. Please conduct your own research or seek guidance from a financial professional for accurate financial planning)
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