Rohan and Riya, two friends in their 30s, were enjoying a cup of coffee when the topic of retirement planning came up. Harish trusts PPF because it offers safety and guaranteed returns. Geeta, however, prefers SIP, hoping for higher growth. Curious to see which option worked better, they both invested Rs 1,10,000 per year for 25 years.
Years passed, and their investments grew. Now, it’s time to find out who built a bigger retirement fund. This comparison can also help you decide which option, PPF or SIP, can give you a higher return.
Also read: SIP vs PPF for Rs 99,999/year investment: Which can create higher corpus in 15 years?
What is SIP in a mutual fund?
A Systematic Investment Plan (SIP) is an investment scheme that allows you to invest a fixed amount regularly.
Public Provident Fund)
PPF (Public Provident Fund) is a long-term savings scheme backed by the government of India. It is a safe investment option that offers guaranteed returns with tax benefits.
Tax benefits in PPF
Investments, interest earned, and withdrawals are tax-free under Section 80C.
What is the current interest rate in PPF?
The Public Provident Fund (PPF) in India currently offers a 7.1 per cent annual interest rate, compounded yearly, and has remained steady since April 202 and provides tax benefits.
What is minimum investment amount 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 investment in PPF?
The minimum deposit in a financial year is 500, whereas the maximum is Rs 1.5 lakh.
How does SIP work?
When you invest in a SIP, a fixed amount is automatically deducted from your bank account at regular intervals (like every month). This money is then invested in a mutual fund, and you receive units based on the fund’s current value (NAV).
How does PPF work?
This scheme, run by post offices and banks, offers voluntary contributions to its account holders. Post Office offers a 7.1 per cent interest rate compounded yearly.
PPF calculation conditions
- Yearly investment: Rs 1,10,000 (monthly investment Rs 9166 x 12 months)
- Time period: 25 years
- Rate of interest: 7.1 per cent
PPF: What will be your retirement corpus in 25 years with Rs 1,10,000/year investment?
On a Rs 1,10,000/year contribution, the estimated retirement corpus in 25 years will be Rs 75,59,211.
SIP calculation conditions
Since SIP investments don’t have fixed returns, we’re using estimated annual returns of 8 per cent for debt funds, 10 per cent for equity funds, and 12 per cent for hybrid funds. We’re also assuming a monthly investment of Rs 9,166 (1,10,000/12)
SIP: Retirement corpus on Rs 9,166 monthly investment for 25 years (hybrid fund)
At 12 per cent annualised return, the estimated corpus in 25 years will be Rs 27,49,800. During that time, the invested amount will be Rs 1,28,52,625, and capital gains will be Rs 1,56,02,425.
SIP: Retirement corpus on Rs 9,166 investment for 25 years (equity fund)
At 10 per cent annualised return, the estimated corpus in 25 years will be Rs 1,13,94,801. The estimated capital gains will be Rs 86,45,001.
SIP: Retirement corpus on Rs 9,166 investment for 25 years (debt fund)
At an 8 per cent annualised return, the estimated corpus in 25 years will be Rs 83,85,418. The estimated capital gains will be Rs 56,35,618.
(Disclaimer: Our calculations are projections and not investment advice. Do you own due diligence or consult an expert for financial planning)