If you’re planning to invest just Rs 9,500 every year, two popular options stand out—Systematic Investment Plan (SIP) and Public Provident Fund (PPF). While both are designed for long-term growth, their nature, risk levels, and returns differ significantly. Here’s a detailed comparison to help you decide which one might work better for your financial goals.

What is SIP?

A Systematic Investment Plan (SIP) is a method of investing in mutual funds. Instead of investing a large lump sum, you invest smaller amounts at regular intervals—monthly, quarterly, or annually. SIPs benefit from market-linked growth and the power of compounding over time.

Once you start a SIP, your chosen investment amount is automatically deducted from your bank account and invested in a mutual fund scheme. Based on the Net Asset Value (NAV) at the time of investment, units are allocated to your account. As your investments grow and compound, the potential returns increase significantly.

Example of SIP returns:

Suppose you invest Rs 790 every month, which totals Rs 9,500 per year. Over 15 years, your total investment would be Rs 1,42,200. Assuming an average annual return of 12%, your estimated returns could be Rs 2,56,415, making the total value Rs 3,98,615.

What is PPF?

The Public Provident Fund (PPF) is a government-backed savings scheme that offers fixed, tax-free interest, currently set at 7.1% per annum (as of January 1, 2024). The investment tenure is 15 years, and you can contribute up to Rs 1.5 lakh annually. Even small annual contributions like Rs 9,500 can steadily grow over time.

PPF also allows for tax deductions under Section 80C of the Income Tax Act. Interest is compounded annually and credited to your account at the end of each financial year. Although it is not as flexible as mutual funds, it offers capital protection and guaranteed returns.

Example of PPF returns:

If you invest Rs 9,500 annually for 15 years, your total investment would be Rs 1,42,500. At 7.1% annual interest, your estimated return would be Rs 1,15,153, bringing the total value to around Rs 2,57,653.

SIP vs PPF: Which one to go for?

If your goal is higher wealth creation and you are comfortable with some market risk, SIPs offer better potential returns. They allow for flexibility, liquidity, and higher compounding through equity market exposure.

However, if you prefer safety and guaranteed returns, especially for long-term savings like retirement or your child’s education, PPF is a more secure option. It also brings in tax benefits and disciplined saving over the years.

Ultimately, both options serve different purposes. SIPs are ideal for investors with a long-term vision and a higher risk appetite, while PPF suits conservative investors looking for steady and tax-free growth. For a well-rounded financial plan, many advisors suggest using both options in combination.