PPF and SIP are two popular investment options. PPF offers safe and assured returns, while SIP is linked to the market and can provide good returns in the long run.
Different options are adopted for investment. Each option has different characteristics. Therefore, each person adopts the option according to his needs. Public Provident Fund (PPF) and Systematic Investment Plan (SIP) are two popular investment options. They are considered ideal for long-term investment. Let’s take a comparative look at them to know which one is the right option for you.
After fully understanding the features and differences between both PPF and SIP, everyone should consider their own financial priorities, risk tolerance, and investment goals. Only then should they decide which option to choose. If you want complete security and guaranteed returns on your investment, PPF is the best option; however, if you have the ability to take market risk and want good returns in the long term, wealth creation can be done through Mutual Fund SIP. It is also possible to invest in both the schemes to diversify your portfolio. Now let’s know the features of both the schemes.
SIP Calculation:
If you invest Rs 12,500 per month in an equity mutual fund through SIP, you will accumulate Rs 22.50 lakh in 15 years. If you get a return of approximately 12 percent, you will get a profit of Rs 40.57 lakh in 15 years and the total amount (corpus) after 15 years will be Rs 63.07 lakh.
PPF Calculation:
If you invest Rs 12,500 per month in PPF, you will get Rs 1.5 lakh in a year and the total amount in 15 years will be Rs 22.50 lakh. (You cannot invest more than Rs 1.5 lakh in PPF annually. That is why this figure has been taken.) The current interest rate is 7.1 percent. Based on that, you will get Rs 16 lakh 94 thousand 599 as interest in 15 years. The total amount received after maturity (corpus) will be Rs 39 lakh 44 thousand 599.
Comparison
Investing in mutual funds through SIP is a flexible and market-linked investment option. You can invest in your favorite mutual fund through monthly SIP. Returns depend on market movements. Especially, investments in equity funds are directly affected by the stock market. Therefore, returns are not guaranteed. However, investing regularly in equity or hybrid funds through SIP for a long period of time is likely to yield better returns than any PPF or fixed return option.
PPF is a government scheme and is risk-free. The maturity period of this scheme is 15 years. It provides assured returns as per the interest rates announced by the government from time to time. There is a government guarantee on both the interest and the principal. One and a half lakh rupees can be invested in this scheme per year. Tax deduction is available under Income Tax Section 80C. This option is good for those who want a safe investment.
PPF is a risk-free option. SIP is a stock market-linked option. PPF is a fixed income option. It currently pays interest at an annual rate of 7.1 percent. The interest rate is reviewed every three months. The return on SIP is not fixed. It depends on the performance of the market; however, it is generally higher than options like PPF.
In terms of liquidity, the lock-in period of PPF is 15 years. After six years, some amount can be withdrawn for specific purposes. However, PPF has low liquidity. SIP has better liquidity in comparison. ELSS types have a lock-in period of three years and solution-oriented funds like retirement funds or children’s funds have a lock-in period of five years. In all other schemes, you can redeem your units at any time. Some funds may have to pay an exit load.
If we consider tax benefits, PPF offers tax benefits under Section 80C of the Income Tax Act. Its interest and maturity amount are also tax-free. If we consider SIP, investment up to Rs 1.5 lakh on ELSS is tax-free. There is no tax on profits up to Rs 1.25 lakh at maturity. If there is a profit exceeding that, long-term capital gains tax is levied. It is beneficial for those in the higher tax slabs.
SBI has brought a great FD scheme, invest money from Rs 1000, who can apply?
