Public Provident Fund (PPF) and Systematic Investment Plans (SIPs) are popular investment options in India. When it comes to choosing between the two, many wonder whether they should invest their money in a safe government backed scheme, or should it be invested in the stock market for potentially higher growth.
While PPF offers government-backed returns and tax benefits, equity mutual fund SIPs provide exposure to the stock market and the potential for higher long-term growth.
Also Read | Layoffs Are Rising In Tech, But These Skills Are Helping People Unlock Better Pay
Choosing between the two depends on risk appetite, financial goals and investment horizon, but let us see if the returns are comparable after 15 years or not in this article.
Also Read: Is Buying A Rs 80 Lakh House On A Rs 1.35 Lakh Salary A Good Financial Decision?
What is a Public Provident Fund (PPF)?
This government-backed investment scheme is one of India's safe and reliable investment options, thanks to its tax benefits, stable interest earnings and ease of access. Primarily designed for individuals to build a secure corpus while offering tax benefits under applicable rules, PPF gained popularity as a retirement planning scheme.
PPF offers guaranteed returns at 7.1% per annum and comes with a 15-year lock-in period. It is suitable for investors looking for stable returns with a long investment horizon as one cannot withdraw their money before it reaches maturity.
The best thing about this plan is that it has an EEE (Exempt-Exempt-Exempt) tax status, which means your investment and the interest are tax-free.
What is a Systematic Investment Plan (SIP)?
A Systematic Investment Plan (SIP), on the other hand, is a method of investing a fixed amount regularly in mutual fund schemes. Instead of trying to time the market, SIPs allow investors to invest across different market cycles and build wealth through disciplined investing.
This investment option is valuable as investors can benefit from market-linked growth potential and rupee cost averaging.
Investors can choose investment frequencies such as daily, weekly, monthly, quarterly, half-yearly, or annually, with monthly SIPs being the most common.
15-Year Return Breakdown
Public Provident Fund (PPF):
Investment amount: Rs 1.5 lakh
Assumed Rate: 7.10% p.a.
Invested Amount: Rs 22.50 lakh
Maturity Value: Rs 40.68 lakh
Post-Tax Value: Rs 40.68 lakh as it is 100% tax-free
Equity Mutual Fund SIP:
Monthly Investment: Rs 12,500 (Rs 1.5 lakh/year)
Assumed Rate: 12%
Invested Amount: Rs 22.50 lakh
Gross Maturity Value: Rs 63.07 lakh
Post-Tax Value (after Long Term Capital Gains tax rules): Rs 57.34 lakh
Also Read: Festive Shopping: What You Should Know Before Choosing A No-Cost EMI
In a nutshell, returns from a Public Provident Fund (PPF) and a Systematic Investment Plan (SIP) are generally not comparable after 15 years. Why? Equity SIPs typically generate a significantly larger corpus despite taxation, whereas PPF offers lower, guaranteed, and completely tax-free returns.
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
