Systematic Investment Plans (SIPs) and Public Provident Fund (PPF) are two popular ways to save for long term wealth creation. They have unique features, different purposes and tax implications.
SIP is a method of investing regularly in mutual funds, usually linked to the stock market. In this case, returns are not fixed and can vary depending on market performance. However, historical trends have shown that mutual fund SIPs have the potential for higher returns over time.
ALSO READ: Want Rs 61,000 Monthly Pension? Here's How A PPF Investment Can Get You There
PPF, on the other hand, is a government-backed savings scheme that offers fixed and guaranteed returns. It comes with a lock-in period of 15 years and provides stable, low-risk growth along with tax benefits. In PPF, one can invest between Rs 500 and Rs 1.5 lakh per financial year. In contrast, mutual fund investment comes with no limitations on contributions.
While SIPs suit investors willing to take some risk, PPF is preferred by conservative investors and retirement planners. Choosing between these two depends on financial goals, risk appetite and investment horizon.
Over 15 years, here's how both investment tools can generate returns:
SIP Investment:
- Monthly SIP amount: Rs 5,000
- Investment duration: 15 year
- Expected rate of return: 12%
- Invested amount: Rs 9,00,000
- Estimated returns: Rs 16,22,879
- Total value: Rs 25,22,879
PPF Investment:
- Yearly Investment: Rs 60,000
- Time Period (In Years): 15
- Rate of Interest 7.10%
- Invested Amount: Rs 9,00,000
- Interest Earned: Rs 7,27,284
- Maturity Value : Rs 16,27,284
The calculation shows that both tools can generate significantly different returns. While SIPs have potential for a much higher value, it is not guaranteed. On the other hand, PPF returns are certain and backed by the government.
Both have different tax implications. Despite its lower returns, PPF offers tax exemptions for contributions and its interest earned and maturity corpus are also tax free. This makes it a tax efficient tool. On the other hand, mutual fund gains are taxed at 12.5% after threshold value of Rs 1.25 lakh if held for over a year.
ALSO READ | Can Rs 22,000 Salary Make You Crorepati? The Math Behind Getting Rs 4-8 Crore Corpus
Choosing between these tools depends on your financial goals and risk appetite. For many investors, a balanced approach works best as diversification between these two allows for reduced risk and long-term growth.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
