SIP versus PPF: An annual investment of Rs 1,32,000 over 35 years; which option is likely to yield a greater retirement fund?

Both Systematic Investment Plans (SIPs) and Public Provident Funds (PPFs) are widely recognized investment avenues.

Retirement planning can be complex, yet SIPs and PPFs stand out as two viable choices. SIPs are linked to market performance, resulting in variable returns, while PPFs provide fixed returns, albeit typically lower than those of SIPs. The essential strategy for both investment types is consistent and disciplined investing.

A Systematic Investment Plan (SIP) enables you to consistently invest a predetermined sum in a mutual fund scheme. You have the flexibility to select the frequency of your investments—whether daily, monthly, quarterly, or annually—making it an efficient and structured approach to wealth accumulation.

The minimum investment required for a Systematic Investment Plan (SIP) is Rs 100. Investors have the flexibility to adjust their SIP contributions by increasing, decreasing, or halting them as needed.

A predetermined sum is automatically withdrawn from your bank account and allocated to mutual funds. These investments occur on a regular basis, and you receive units according to the fund’s net asset value (NAV).

The Public Provident Fund (PPF) is a widely favored savings program aimed at assisting individuals in accumulating a retirement fund. Additionally, it serves as an excellent option for diversifying your investment portfolio. Opening a PPF account is a straightforward process that can be done at any bank or post office.

This program, managed by postal services and financial institutions, provides account holders with the option to make voluntary contributions. The Post Office offers an annual interest rate of 7.1 percent, compounded yearly.

The minimum deposit allowed in a financial year is Rs 500, while the maximum limit is Rs 1.5 lakh.

However, if you commit to investing Rs 11,000 each month for 35 years, which option will ultimately enhance your retirement savings?

If you’re contemplating which option is more advantageous for retirement savings, let’s analyze them. By investing Rs 11,000 monthly over a span of 35 years, which investment will yield a greater corpus?

Now, let’s calculate the future returns. First, let’s consider PPF, the Annual investment for PPF is around Rs 132,000 (monthly contribution of Rs 11,000 multiplied by 12 months). The duration will be 35 at an interest rate of 7.1 percent.

With a monthly contribution of Rs 11,000, the retirement fund is projected to reach Rs 1,99,74,114 in 35 years.

Now, let’s consider SIPs. Given that SIP investments do not guarantee fixed returns, we are estimating based on annualized returns of 8 percent for debt funds, 10 percent for equity funds, and 12 percent for hybrid funds.

With an annualized growth rate of 12 percent, the projected corpus after 35 years is expected to reach Rs 7,14,47,960. Over this period, the total investment will amount to Rs 6,20,000, resulting in capital gains of Rs 6,68,27,960 from hybrid funds.

With an annualized growth rate of 10 percent, the projected corpus after 35 years is expected to reach Rs 4,21,11,044. The anticipated capital gains are estimated to be Rs 3,74,91,044.

With an annualized growth rate of 8 percent, the projected corpus after 35 years is expected to reach Rs 2,54,00,925. The anticipated capital gains from this investment will amount to Rs 2,07,80,925.