Let’s understand with an example: Anna and Anjal are friends who are in their 30s. They are having a cup of coffee, and they are chatting about retirement planning. Anna has confidence in PPF as it is safe and delivers sure returns. Anjal would rather invest in SIP, anticipating more growth. Wanting to know which one would perform better, both of them decide to invest Rs 90,000 per year for 32 years.
Now is the time to know who has a larger retirement fund. This comparison will also assist you in determining which option, PPF or SIP, can provide a better return.
What is Systematic Investment Plan (SIP)?
SIP is a method of investing a fixed sum in mutual funds. People can invest on a daily basis, monthly, quarterly, or annually in a mutual fund scheme.
What is PPF?
Public Provident Fund is a government-guaranteed retirement plan that comes under Section 80C of the Income Tax Act, which qualifies for deduction.
Interest rate in PPF
Currently Public Provident Fund is offering an interest rate of 7.1 per cent per annum.
Annualised return
Since there are no fixed returns in SIP investment, we are calculating as per annualised returns of 8 per cent (debt fund), 10 per cent (equity fund), and 12 per cent (hybrid fund).
PPF calculation conditions: Rs 90,000/year investment for 32 years
Yearly investment: Rs 90,000 (monthly investment Rs 7,500x 12 months)
Time period: 32 years
Rate of interest: 7.1 per cent
PPF: What will be your retirement corpus in 32 years with Rs 90,000/year investment?
On a Rs 90,000/year investment, the retirement corpus in 32 years will be Rs 1,08,33,320. The estimated total interest during the investment period will be Rs 79,53,320, and the invested amount will be Rs 28,80,000.
SIP investment conditions
Since there are no fixed returns in SIP investment, we are calculating as per annualised returns of 8 per cent (debt fund), 10 per cent (equity fund), and 12 per cent (hybrid fund). We’re also assuming a monthly investment of Rs 7,500(90,000/12)
SIP: What you can get on Rs 7,500 monthly investment for 32 years (hybrid fund)
At 12 per cent annualised growth, the estimated retirement corpus in 32 years will be Rs 2,91,88,783. The invested amount will be Rs 28,80,000, and the estimated capital gains will be Rs 2,63,08,783.
SIP: What you can get on Rs 7,500 monthly investment for 32 years (equity fund)
At 10 per cent annualised growth, the estimated retirement corpus in 32 years will be Rs 1,90,68,670. The estimated capital gains will be Rs 1,61,88,670.
SIP: What you can get on Rs 7,500 monthly investment for 32 years (debt fund)
At 8 per cent annualised growth, the estimated retirement corpus in 32 years will be Rs 1,25,96,497. The estimated capital gains will be Rs 97,16,497.
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Disclaimer: For Information Purposes Only. Calculations and Data Provided are Generic in Nature and May Vary Based on Actual Conditions