SIP Vs PPF: Which One Builds Larger Corpus In 15 Years With Annual Investment Of Rs 1 Lakh?

When it comes to long-term financial planning, both Systematic Investment Plans (SIPs) and Public Provident Fund (PPF) are popular choices. While PPF offers safety and assured returns, SIPs provide the potential for higher gains through market-linked growth.

But if you were to invest Rs 1 lakh per year in either option for 15 years, which one would yield a larger corpus?

A Systematic Investment Plan (SIP) is a disciplined approach to investing in mutual funds where a fixed amount is contributed at regular intervals — monthly, quarterly or annually. This harnesses the power of compounding and market growth over time.

SIPs are market-dependent, meaning returns fluctuate based on stock performance.

They offer flexibility, as investors can adjust, pause or stop contributions as and when needed.

The Public Provident Fund (PPF) is a government-backed savings scheme that encourages long-term savings with stable, tax-free returns.

PPF has a fixed tenure of 15 years. The interest rate is government-determined, currently set at 7.1% per annum.

Contributions qualify for tax benefits under Section 80C, making it a popular option for conservative investors.

Now, let’s see how Rs 1 lakh invested annually in each option grows over 15 years.

SIPs

• Annual investment: Rs 1,00,000

• Total contribution over 15 years: Rs 15,00,000

• Assumed average annual return: 12%

• Estimated corpus at the end of 15 years: Rs 39,49,428

• Capital gains: Rs 24,49,428

PPF

• Annual investment: Rs 1,00,000

• Total contribution over 15 years: Rs 15,00,000

• Interest rate: 7.1% per annum

• Estimated corpus at the end of 15 years: Rs 24,68,209

• Interest earned: Rs 9,68,209

From this example, you can see that SIP outperforms PPF in terms of wealth creation, provided the market performs favourably.

But despite that, the decision to choose one over the other depends on many factors.

SIP

SIPs are suitable for investors with a long-term horizon and a high-risk appetite. They can generate substantial wealth over time despite market volatility. SIPs also offer flexibility, allowing investors to modify, pause or increase contributions based on market conditions.

PPF

PPF interest rates are periodically revised by the government, which can impact overall earnings. With a fixed tenure of 15 years, PPF promotes disciplined savings, but offers limited liquidity. This investment is ideal for risk-averse individuals who prioritise safety, steady growth and tax benefit.

PPF offers significant tax advantages, as contributions, interest earned and maturity proceeds are entirely tax-exempt.

In contrast, SIPs in equity funds are subject to taxation, with gains above Rs 1.25 lakh per year attracting 12.5% Long-Term Capital Gains (LTCG) tax.

Liquidity is another key differentiator — SIPs provide higher liquidity since investors can withdraw funds at any time, while PPF has a long lock-in period, although partial withdrawals are allowed after a few years.

The right investment depends on your financial goals and risk tolerance. If you seek higher returns and can withstand market volatility, SIP is a better choice. If you prefer assured, tax-free returns with minimal risk, PPF is ideal.

Finally, a balanced approach incorporating both investments could help optimise risk and returns in your portfolio.