Choosing between popular investment schemes like SIP and PPF could be a difficult choice to make, but one can ease its decision-making process by understanding the basic difference along with the calculation details. Here, we will discuss which can generate a higher retirement corpus on the investment of Rs 1,40,000/year, will it be a systematic investment plan or Public Provident Fund. The decision will be all yours, but before that, make sure to go through the article.
Also read: SIP vs PPF with Rs 1,10,000/year investment: Which can create a larger corpus in 25 years?
Understanding SIP investment
A Systematic Investment Plan allows investors to invest a fixed amount in mutual fund(s). Investors can go for daily, monthly, quarterly, or yearly investments in a mutual fund scheme. You can change the investment amount based on your financial circumstances.
Understanding Public Provident Fund?
PPF is a government-backed scheme that you can also use for portfolio diversification. Deposits up to 1.5 lakh in a year are eligible for tax exemptions under Section 80C of the Income Tax Act.
What is the minimum investment amount in SIP?
The minimum investment amount in SIP is Rs 100. You can also increase, decrease, or stop their SIP.
What is the minimum and maximum investment amount in PPF?
The minimum investment in a year is Rs 500, whereas the maximum investment in a year is Rs 1.5 lakh.
How does SIP work?
In a systematic investment plan, 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 savings scheme, available at post offices and banks, allows you to make voluntary deposits. The Post Office version offers a 7.1 per cent annual interest rate, compounded yearly.
PPF calculation conditions: Rs 1,40,000/year investment for 25 years
Yearly investment: Rs 1,40,000 (monthly investment Rs 11,666x 12 months)
Period: 25 years
Rate of interest: 7.1 per cent
PPF: What will be your retirement corpus in 25 years with Rs 1,40,000/year investment?
On a Rs 1,40,000/year investment, the retirement corpus in 25 years will be Rs 96,20,814. The estimated total interest during that time will be Rs 61,20,814.
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(1,40,000/12)
SIP: What will you get on Rs 11,666 monthly investment for 25 years (hybrid fund)
At 12 per cent annualised growth, the estimated corpus in 25 years will be Rs 1,98,57,942. During that time, the investment amount will be Rs 34,99,800, and capital gains will be Rs 1,63,58,142.
SIP: What will you get on Rs 11,666 monthly investment for 25 years (equity fund)
At 10 per cent annualised growth, the estimated corpus in 25 years will be Rs 1,45,02,700. The estimated capital gains will be Rs 1,10,02,900.
SIP: What will you get on Rs 10,833 monthly investment for 30 years (debt fund)
At 8 per cent annualised growth, the estimated corpus in 25 years will be Rs 1,06,72,517. The estimated capital gains will be Rs 71,72,717.
DISCLAIMER: Not financial advice; invest at your own risk
