When planning for retirement, you can choose from two main options: market-linked investments like mutual funds, and non-market linked investments like Public Provident Fund (PPF). Mutual funds can be risky with no guaranteed returns, while PPF is safe with guaranteed returns. The secret lies in regular investment and patience. Let’s consider an example – if you invest Rs 1,45,000 every year for 30 years, which option will give you a bigger retirement fund, SIP or PPF? Let’s find out.
What is Systematic Investment Plan (SIP)?
SIP is a process of investing a fixed amount in mutual funds. Individuals can invest daily, monthly, quarterly, or yearly in a mutual fund scheme.
What is PPF?
Public Provident Fund is a retirement-centric scheme that individuals also use for their portfolio diversification. One can open a PPF account in a bank or post office.
What is minimum amount to invest in SIP?
The minimum amount to invest in an SIP is Rs 100. One can also increase, decrease, or stop their SIP.
What is minimum and maximum amount to invest in PPF?
The minimum deposit in a financial year is 500, whereas the is Rs 1.5 lakh.
How does SIP work?
A fixed amount is automatically deducted from your bank account and invested in mutual funds. These investments happen regularly, and you get units based on the fund’s 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 calculation conditions
Yearly investment: Rs 1,45,000 (monthly investment Rs 12,083x 12 months)
Time period: 30 years
Rate of interest: 7.1 per cent
PPF: What will be your retirement corpus in 30 years with Rs 1,45,000/year investment?
On a Rs 1,45,000/year investment, the retirement corpus in 30 years will be Rs 1,49,35,880. The estimated total interest during that time will be Rs 1,05,85,880.
SIP investment conditions
Since there are no fixed returns in SIP investment, we are calculating as per annualised returns of 8 per cent (debt fund), 10 per cent (equity fund) and 12 per cent (hybrid fund). We’re also assuming a monthly investment of Rs 12,083(1,45,000/12)
SIP: What will you get on Rs 12,083 monthly investment for 30 years (hybrid fund)
At 12 per cent annualised growth, the estimated corpus in 30 years will be Rs 3,72,27,399. During that time, the invested amount will be Rs 43,49,880, and capital gains will be Rs 3,28,77,519.
SIP: What will you get on Rs 12,083 monthly investment for 30 years (equity fund)
At 10 per cent annualised growth, the estimated corpus in 30 years will be Rs 2,51,24,094. The estimated capital gains will be Rs 2,07,74,214.
SIP: What will you get on Rs 12,083 monthly investment for 30 years (debt fund)
At 8 per cent annualised growth, the estimated corpus in 30 years will be Rs 1,71,29,021. The estimated capital gains will be Rs 1,27,79,141.
(Disclaimer: Our calculations are projections and not investment advice. Do your due diligence or consult an expert for financial planning)
