Rs 5,000 SIP Vs PPF: What Is A Better Investment Over 15 Years?

Investing a modest sum each month can help build a sizeable corpus over time. Consistency and financial discipline over a long-term horizon could help earn higher returns due to the power of compounding. When it comes to long-term investment choices, options like Public Provident Fund (PPF) and mutual fund Systematic Investment Plans (SIPs) are often preferred by investors in India.

Options like PPF and mutual fund SIPs can support your goal of building a sizeable fund. Both are effective for long-term wealth creation, although they vary in returns, flexibility, structure and tenure.

Public Provident Fund is a government-backed savings scheme that comes with a lock-in period of 15 years. It provides a fixed interest rate of 7.1% per annum and the earnings from it are entirely exempt from tax. It is preferred by investors seeking stable and assured returns. After 15 years, the investments can be extended in blocks of five years each.

On the other hand, an SIP scheme allows investors to contribute to mutual funds regularly, typically every month. The returns vary with market movements, though over time, equity SIPs have generally yielded between 10% and 12% annually on average. They also offer flexibility, with no mandatory lock-in period, except for ELSS schemes that require a minimum investment period of three years.

PPF Calculation

Monthly investment: Rs 5,000

Tenure: 15 years

Returns: 7.1% per annum

Total investment: Rs 9 lakh

Estimated returns: Rs 6.78 lakh

Maturity corpus: Rs 15.78 lakh

Mutual Fund SIP Calculation

Monthly investment: Rs 5,000

Tenure: 15 years

Returns: 12% per annum (assumption)

Total investment: Rs 9 lakh

Estimated returns: Rs 14.8 lakh 

Maturity corpus: Rs 23.8 lakh

It is important to note that returns on SIP investments will attract capital gains tax and hence the actual benefits could be lower. On the other hand, PPF investments are completely tax-free.

To conclude, deciding whether to opt for PPF or SIP depends on your financial objectives, risk tolerance and how long you plan to stay invested. Those seeking assured, tax-free earnings may prefer the PPF, whereas investors open to market fluctuations and aiming for faster wealth creation might find SIPs more appealing.