When planning for long-term wealth creation, two popular options often come into focus: the Systematic Investment Plan (SIP) and the Public Provident Fund (PPF). Both have distinct features and serve different types of investors. But if you have Rs 1.3 lakh to invest annually for the next 15 years, which one offers better returns?

Let’s break it down.

What is SIP?

A Systematic Investment Plan or SIP is a method of investing in mutual funds where a fixed amount is invested at regular intervals—usually monthly. It encourages disciplined investing and helps reduce the impact of market volatility through rupee cost averaging.

In a SIP:

• You choose a mutual fund scheme.
• A fixed amount is automatically debited from your bank account.
• Units are allocated based on the fund’s NAV (Net Asset Value).
• Over time, with every contribution and reinvestment, your wealth compounds.

Suppose you invest Rs 10,833 per month (adding up to Rs 1.3 lakh annually) for 15 years. If the fund generates an average return of 12% annually, your investment could grow to more than Rs 50 lakh.

However, it’s important to note that mutual fund returns are market-linked and not guaranteed.

Returns on Rs 1,30,000 annually over 15 years

• Monthly investment: Rs: 10,833
• Invested amount: Rs 19,49,940
• Estimated amount: Rs 32,05,825
• Total value: Rs 51,55,765

What is PPF?

The Public Provident Fund or PPF is a government-backed savings scheme designed for long-term investment. It is ideal for conservative investors seeking guaranteed, tax-free returns.

Key highlights:

• The current interest rate is 7.1% per annum, compounded annually.
• You can invest a minimum of Rs 500 and a maximum of Rs 1.5 lakh in a financial year.
• The maturity period is 15 years, and the account can be extended in blocks of five years.
• Deposits made in a PPF account qualify for tax deductions under Section 80C.
• Interest earned is completely tax-free.

If you invest Rs 1,30,000 every year for 15 years, your corpus will grow to approximately Rs 40 lakh, assuming the interest rate remains unchanged.

Returns on Rs 1,30,000 annually over 15 years

• Invested amount: Rs 19,50,000
• Estimated amount: Rs 15,75,781
• Total value: Rs 35,25,781

Which investment option is better?

SIP has the potential to deliver significantly higher returns than PPF over a 15-year period. With a higher average annual return of around 12%, SIP investments could outpace PPF by roughly Rs 10 lakh or more.

However, SIP returns are not fixed. They fluctuate with the market, so there’s an inherent risk involved. On the other hand, PPF offers safety, steady growth, and tax-free returns, making it an excellent option for risk-averse investors.

If you’re comfortable with some level of risk and want to maximise returns, SIPs in quality mutual funds are worth considering. But if your priority is capital protection with guaranteed returns, then PPF is the better choice.

(Disclaimer: Don’t consider this as an investment advice. Do your own due diligence or consult an expert for financial planning)