Rs 5,000 SIP vs PPF vs FD: Which One Gives Best Returns?

A long-term investment strategy is crucial to building a large corpus. Even modest investments every month could be helpful in achieving big financial targets. For Indian investors, mutual fund systematic investment plans (SIP), Public Provident Fund (PPF) and Fixed Deposits (FDs) have become popular investment instruments. Choosing the right investment instrument to start your wealth accumulation journey could be confusing.

In India, PPF and FDs have traditionally remained preferred investment avenues for conservative investors who look for security over high returns. On the other hand, SIPs have become popular in recent years due to their ability to offer market-linked returns. An SIP allows you to invest a fixed amount every month into mutual funds, while in PPF, you can invest a maximum of Rs 1.5 lakh per financial year.

FDs allow investing a lump sum amount for a fixed tenure at a pre-determined interest rate. While SIPs and FDs offer more flexibility in terms of tenure, PPF comes with a lock-in period of 15 years.  

For many new investors, investing a modest amount of Rs 5,000 every month could be a promising start for long-term wealth accumulation. Let’s take a look at how a monthly investment of Rs 5,000 in SIPs, FDs and PPF could be helpful in accumulating a large corpus over 15 years.

Rs 5,000 Monthly SIP

Monthly investment: Rs 5,000

Tenure: 15 years

Total investment: Rs 9 lakh

Expected rate of return: 12% per annum

Estimated returns: Rs 16.22 lakh

Maturity corpus: Rs 25.22 lakh

Rs 5,000 Monthly In PPF

Monthly investment: Rs 5,000 (Rs 60,000 per annum)

Tenure: 15 years

Total investment: Rs 9 lakh

Expected rate of return: 7.1%

Estimated returns: Rs 7.27 lakh

Maturity corpus: Rs 16.27 lakh

Rs 60,000 Annual Investment In FD

Investment annually: Rs 60,000 (Rs 5,000 per month)

Tenure: 15 years

Total investment: Rs 9 lakh

Expected rate of return: 7%

Estimated returns: Rs 6.88 lakh

Maturity corpus: Rs 15.88 lakh

As seen from the above calculations, a monthly investment of Rs 5,000 in SIP, PPF and FD can generate varied returns due to the differences in the interest rates. Currently, the PPF interest rate stands at 7.1% per annum. Here, for the SIP investment, we have assumed an annual interest rate of 12%. Traditionally, FDs with long-term tenure have offered returns ranging from 7-7.5% per annum.  

As the above calculations indicate, the SIP investment is likely to grow to Rs 25.22 lakh in 15 years, while the PPF corpus is expected to rise to Rs 16.27 lakh. On the other hand, investments in FDs could help you build a corpus of Rs 15.88 lakh over the same horizon.  

Selecting the right investment instrument should be based on your risk appetite and financial goals. It’s important to note that SIP returns could be impacted due to market volatility. On the other hand, PPF and FDs, though they offer lower returns compared to SIPs, could be suitable instruments if you are looking for secure returns.