Mutual Fund SIP vs PPF: How Rs 1.5 Lakh Investment Per Annum Will Grow In 15 Years
While the PPF scheme offers a stable return in the long run, mutual fund SIPs could be more rewarding with the potential growth of the stock market over time.
Mutual funds and Public Provident Fund (PPF) are two popular avenues for investors looking for long-term investments. While mutual funds are known for offering market-linked returns, the PPF scheme has become a suitable choice for investors looking for secure returns.
Choosing any of these options should depend on your financial goals, investment tenure and risk tolerance.
Though both the schemes vary in structure, returns, taxation features and investment tenures, they are important investment instruments for long-term wealth accumulation.
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PPF vs Mutual Fund SIPs
PPF is a government-backed scheme known for offering a stable return. On the other hand, systematic investment plans (SIPs) can provide higher returns, but they are subject to market volatility. In case of PPF, there is a default 15-year lock-in period. On the other hand, short-term volatility risks push investors to keep a long-term horizon when investing in mutual funds.
In the case of mutual funds, SIPs are an easy way of investment. These have the potential for higher returns compared to traditional investments like fixed deposits or small savings schemes. The mutual fund SIPs allow investors to put their money across various debt and equity instruments without getting exposed to the markets directly.
However, it is important to note that PPF is an entirely tax-free tool, while mutual fund gains are taxable, as long-term and short-term capital gains taxes could be levied as per the Income Tax Act, 1961.
The PPF investments qualify for tax deductions under Section 80C, which makes it an attractive investment option.
In any financial year, one can invest between Rs 500 and Rs 1.5 lakh under the PPF scheme. At present, its returns are 7.1% compounded annually. On the other hand, there is no limit to investing in mutual funds and returns can vary depending on the market conditions.
Investing Rs 1.5 Lakh Per Annum For 15 Years: Calculations
Assuming one wants to invest Rs 1.5 lakh annually for 15 years, let us see which of these two schemes could provide higher returns:
PPF Calculation
Tenure: 15 years
Amount: Rs 1.5 lakh per month
Returns: 7.1% per annum
Investment amount: Rs 22.5 lakh
Interest earned: Rs 16.95 lakh
Final corpus: Rs 39.45 lakh
Mutual funds:
Time: 15 years
Amount: Rs 1.5 lakh
Returns: 12% per annum (assumption)
Investment amount: Rs 22.5 lakh
Interest earned: Rs 36.99 lakh
Final corpus: Rs 59.49 lakh
While the gains on PPF are tax-free, the returns on SIPs will attract long-term capital gain tax (LTCG) depending on the mutual fund scheme category. This can bring down actual returns. However, for a 15-year horizon, SIPs could offer higher returns compared to the PPF scheme.
