SIP vs PPF: How much returns have in 10, 15, 20, 25 years, if ₹15,000/month is invested regularly?
SIPs and PPF are arguably the most talked about options in the country when a person needs money to save some or invest wisely.
Both happen to be good for people who are going to save for decades, but the difference is huge in terms of returns, risk, liquidity and tax benefits offered.
This article explains what the difference between SIPs and PPFs are, comparing and analyzing their probable returns after investment of ₹15,000 monthly in every alternative scheme above 10-year time periods such as 15, 20, and 25 years.
What is SIP?
SIP, or systematic investment plan, is an investment procedure for putting money into mutual funds in a fixed amount from time to time (mainly on a month-to-month basis), which enjoys rupee cost averaging that brings down the volatility of the market. Risk and return profile differ in case of SIPs because of the difference in the kind of mutual fund, whether equity, debt, or hybrid. Long term annualized return from equity mutual funds range from 10% to 15%.
Some of the main features of SIP
Flexibility to join or exit investment at any given time.
Investments may potentially fetch higher returns, especially on equity funds.
Liquidity—withdrawal facility available at all times, albeit subject to charges of exit load for some.
There is no investment limit.
It is taxable through capital gains.
SIPs are an attractive option for the young investor who has the risk-taking capacity and wants to get a higher return over the long term.
It also saves time by automatically investing money at regular intervals every month, thereby making it easy to create wealth month after month.
What is PPF?
The Public Provident Fund is a saving scheme the government offers. It gives a fixed rate of interest, which is revised each quarter.
PPF has a lock-in period of 15 years, thus it is an instrument for a long-term investment. PPF is risk-free as it guarantees returns and sovereign security.
Important Features of PPF
• Fixed interest rate (as of Q4 FY 2024, it is 7.1% per annum).
• Lock-in period of 15 years, extendable in blocks of 5 years.
• Tax exemption under Section 80C of the Income Tax Act.
• All returns are tax-free.
• Highest annual investment permissible: ₹1.5 lakh.
PPF is quite apt for conservative investors, looking at safety and a fixed return. It happens to be tax-free and thus is among the best instruments available for long-term goals such as retirement and education for children.
Return Comparison: SIP vs PPF
Understanding SIP and PPF returns with a monthly ₹15,000 investment over 4 timeframes- 10 years, 15 years, 20 years, and 25 years.
Assumptions
1. 12% Annualized SIP Returns is used to calculate historical averages of equity mutual funds
2. 7.1% is the annual PPF return
Formula Used
•SIP: FV = P × [(1 + r)^n – 1] / r × (1 + r), where
o P = Monthly investment (₹15,000)
o r = Monthly rate of return (annual rate / 12)
o n = Total number of months
• A = P × [(1 + r)^n – 1] / r, compounded annually.
10-Year Investment: SIP vs PPF
SIP:
• Monthly Investment: ₹15,000
• Annualized Return: 12%
• Future Value: ₹35,93,981
PPF:
• Monthly Investment: ₹15,000
• Annualized Return: 7.1%
• Future Value: ₹24,82,650
In 10 years, SIP outperforms PPF with a huge margin of around 44% returns. That is due to the compounding effect of equity markets.
15-Year Investment: SIP vs PPF
SIP:
• Monthly Investment: ₹15,000
• Annualized Return: 12%
• Future Value: ₹73,50,430
PPF:
• Monthly Investment: ₹15,000
• Annualized Return: 7.1%
• Future Value: ₹46,02,252
This gap widens even up to 15 years. In the case of SIP investments shoot up almost by 60% from PPF hence proving that exposure to equity market for long will have an enormous advantage.
20-Year Investment: SIP vs PPF
SIP:
• Monthly Investment: ₹15,000
• Annualized Return: 12%
• Future Value: ₹1,44,20,576
PPF:
• Monthly Investment: ₹15,000
• Annualized Return: 7.1%
• Future Value: ₹67,67,222
At the closing of the 20th year, SIP works out to be above two times PPF return, and hence presents an evidence that how aggressively an equity investment can ramp up.
SIP vs PPF: 25 years
SIP:
Monthly Investment: ₹ 15,000
Annualised Return: 12%
Future Value: ₹2,67,29,110
PPF:
Monthly Investment: ₹15,000
Annualized Return : 7.1%
Future Value: ₹95,94,576
The return of SIP at 25 years almost reaches threefold compared to the PPF returns. This great difference highlights how compounding along with higher equity market returns will be powerful factors.
Conclusion and Detailed Study
Tax Benefits
The key difference between SIP and PPF lies in the taxability. SIP returns attract capital gains tax. Short-term capital gains attract a tax of 15% while long-term capital gains exceeding ₹1 lakh invite 10% tax. PPF gets EEE status: contributions, interest, and withdrawal happen to be tax-free.
Although SIPs are taxed, the net returns are higher than that of PPF, which have a lower growth rate, especially over the long run.
Risk and Volatility
PPF provides guaranteed returns with no risk at all. It is therefore ideal for risk-averse investors. SIPs, especially in equity funds, are prone to market volatility. But the long term nature of SIPs smoothes out the short-term shocks and reduces the overall risk.
Inflation and Wealth Creation
The assured returns of PPF never keep pace with inflation, which brings down the purchasing power over time. SIP, with its greater returns potential, fights inflation better and creates real wealth.
Combination Strategies for SIP and PPF
A balanced investment strategy could be a blend of SIP and PPF benefits. For example,
•tSIP for Growth: Invest 60%-80% of the monthly investment amount in SIP to create wealth in the long term.
•tPPF for Safety: Use the rest 20%-40% in PPF to ensure there is an assured return to keep a fraction of your investment.
Thus, a mix of risk-taking and risk-averse goals would be achieved by checking growth and stability in your account.
Case Studies
Case 1: Rajesh’s SIP Journey
Rajesh is 30 years old. He invests ₹15,000 every month in SIPs, with an expected annual return of 12%. In 25 years, his corpus grows to ₹2.67 crore. He will use it for his retirement and enjoy inflation-beating returns with liquidity.
Case 2: Meena’s PPF Strategy
Meena, 40: Safe and tax-free. She invests ₹15,000 per month in PPF. After completion of 25 years, her corpus would work out to ₹95.94 lakh.
As against Rajesh’s returns Meena does not really think that as long as money comes back intact along with good security and taxes being exempt as well.
Common Queries
Whether I can invest both in SIP and PPF?
Yes. The majority invest through both mediums and create this diversified portfolio wherein it helps managing risks and their resultant returns.
What happens if I miss an SIP payment?
Most mutual funds allow you to skip payments without penalty. Still, for compounding benefits, regularity is the word.
Is PPF ideal for short-term goals?
No, PPF is meant for long-term goals since it has a 15-year lock-in period.
Conclusion
Investment in SIPs or PPF at ₹15,000 a month has its pros and personally fits a different set of investors. One who wants high returns is ready to take risks and needs liquidity might prefer SIP.
Long-term returns of SIP are much better than that of PPF, and therefore, can be considered ideal for wealth creation. On the other hand, PPF is apt for risk-averse persons, who seek assured tax-free returns.
Thus, the ultimate decision between SIP and PPF completely depends on the financial objectives of the investor, his risk capacity, and the time horizon.
A prudent investor can use both SIP and PPF together to build a strong portfolio. It makes one’s future secured along with the market growth and also saves risk-free.
Frequently Asked Questions
1. Which one is better, SIP or PPF?
Investing through SIP can create wealth for the future and earn returns above inflation, whereas PPF will serve the needs of risk-averse investors searching for guaranteed tax-free returns.
Though SIP offers the flexibility and a higher growth prospect, PPF offers stability and security.
Therefore, it would depend on one’s risk-taking capacity and their financial goals wherein SIP suits aggressive investors and PPF conservative ones.
2. Why is PPF not a good investment?
Some of the reasons why PPF is not such a good investment are as follows:
Low Returns: The present interest rate is 7.1%. This is, most of the time, unable to beat the inflation rate over the long-term horizon.
So, it does eat into your real money in the long term. For anyone looking for beating inflation returns, PPF will not be adequate.
Lock-In Period: It has very strict 15-year lock-in period, meaning it has huge liquidity restrictions. Partial withdrawal allowed but only through specific conditions; this does not allow access to fund in emergencies.
Limited Contribution: The maximum yearly investment is at ₹1.5 lakh restricting growth potential as well. For high-net-worth individuals this cap prevents these individuals from accessing PPF extensively as a medium of savings.
Lack of Diversification: PPF does not provide market-linked growth as in equity investments. The fixed returns of PPF may lag behind other asset classes over a period of time.
3. Which one is better, PPF or debt mutual fund?
Debt Mutual Funds are more appropriate for short to medium-term goals with higher liquidity and scope for slightly better returns than PPF.
Also, debt funds provide diversification across bonds and less risky than equities. But PPF is more suitable for risk-averse investors as the returns are guaranteed tax-free returns and government-backed. It suits people looking for predictable savings over long periods.
4. Which is better, PLI or SIP?
It is the one available to a person seeking a combination of life insurance along with fixed and guaranteed returns.
Being a product backed by the government, reliability and safety attach to it. SIP purely serves the purpose of wealth creation, and market-linked returns are looked for.
Such an investment opportunity allows investors to collect the magic of compounding plus the benefits drawn from rupee cost averaging principle.
To produce wealth, SIP is considered much better whereas PLI provides both insurance coverage besides guaranteed return amount.
5. Which plan is better than PPF?
PLI is much more superior option above PPF Better PPF plans with specific aim of course can be summarised in:
No SIP in Equity Mutual Funds: Those who expect higher returns and corpus generation Suitable for investors who invest long-term and look for an overall increase in wealth generation because of its exposure to equities.
no ELSS (Equity-Linked Savings Scheme): Tax benefits are almost the same as in PPF, but market-linked returns with a lock-in period of just 3 years. ELSS also provides an opportunity for post-tax returns being higher than those from PPF.
no National Pension System (NPS): It provides tax benefits and an element of equity and debt, more suitable for old age planning. The Tier-I account will ensure disciplined old-age savings with additional tax benefits.
Debt Mutual Funds: For higher liquidity and better returns than PPF for low-risk investors. Debt funds are more flexible and cater to both short- and medium-term goals.
The best strategy will only depend on the investment horizon, risk tolerance, and financial goals.