Are you worried about saving for retirement? You’re not alone. Hear out a situation. Two friends, Ramesh and Suresh, were confused. They wanted to grow their money but weren’t sure how. Ramesh chose a safe and guaranteed option, while Suresh opted for a riskier but potentially more rewarding choice. Let’s see how their investments played out over 30 years and find out which option generated a higher retirement corpus. This can help you decide between two popular investment options: PPF and SIP.
Introduction to Systematic Investment Plan
SIP allows you to invest in mutual fund(s) by contributing a fixed amount at regular intervals. You can start investing in SIP with a small amount of Rs 100.
What is PPF?
Public Provident Fund is a government-backed long-term savings scheme designed to help you achieve your future financial goals.
What is current interest rate in PPF?
Public Provident Fund is offering an interest rate of 7.1 per cent, compounded annually.
Tax benefits
PPF is applicable for tax exemption under Section 80C. Contributions up to Rs 1.5 lakh in a financial year are tax-deductible.
What is minimum investment amount to start SIP?
The minimum amount to start a SIP is Rs 100. One can also increase, decrease, or stop their SIP.
What is minimum investment in PPF?
The minimum deposit in a financial year is 500, whereas the maximum is Rs 1.5 lakh.
How does SIP work?
A predetermined amount is automatically debited from your bank account at regular intervals and invested in mutual funds, earning you units based on the fund’s Net Asset Value (NAV).
How does PPF work?
This scheme, run by post offices and banks, offers voluntary contributions to its account holders. Post Office offers 7.1 per cent interest rate compounded yearly.
PPF calculations
- Yearly investment: Rs 1,40,000 (monthly investment Rs 11666 x 12 months)
- Time period: 30 years
- Annualised return: 7.1 per cent
PPF: What will be your retirement corpus in 30 years with Rs 1,40,000/year investment?
On Rs 1,40,000/year contribution, the estimated retirement corpus in 30 years will be Rs 1,44,20,850.
SIP investment conditions
Since SIP investments don’t have fixed returns, we’re using estimated annual returns of 8% for debt funds, 10% for equity funds, and 12% for hybrid funds. We’re also assuming a monthly investment of Rs 11,666 (1,40,000/12)
SIP: Retirement corpus on Rs 11,666 monthly investment for 30 years (hybrid fund)
At 12 per cent annualised growth, the estimated corpus in 30 years will be Rs 4,11,79,974. During that time, the invested amount will be Rs 41,99,760, and capital gains will be Rs 3,69,80,214.
SIP: Retirement corpus on Rs 11,666 investment for 30 years (equity fund)
At 10 per cent annualised growth, the estimated corpus in 30 years will be Rs 2,65,90,609. The estimated capital gains will be Rs 2,23,90,849.
SIP: Retirement corpus on Rs 11,666 investment for 30 years (debt fund)
At 8 per cent annualised growth, the estimated corpus in 30 years will be Rs 1,75,02,444. The estimated capital gains will be Rs 1,33,02,684.
(Disclaimer: Our calculations are projections and not investment advice. Do your due diligence or consult an expert for financial planning)
