PPF vs SIP: Which investment will make you a millionaire faster with Rs.10,000 monthly?

When it comes to building wealth, choosing the right investment scheme is crucial. Public Provident Fund (PPF) and Systematic Investment Plan (SIP) are two popular options. Each has its advantages and disadvantages. Let’s delve into the details to understand which scheme can help you reach the millionaire mark sooner.

Public Provident Fund (PPF)

PPF is backed by the government, making it a safe and secure investment. Currently, PPF offers an interest rate of 7.1%. PPF falls under the EEE (Exempt-Exempt-Exempt) category, meaning the investment, interest earned, and maturity amount are all tax-free. The scheme matures after 15 years and can be extended in blocks of 5 years indefinitely. Interest is compounded annually, enhancing your investment growth over time.

Funds are locked in for a long period, with limited withdrawal options before maturity. The maximum investment limit is ₹1.5 lakh per financial year, restricting how much you can invest.

Systematic Investment Plan (SIP)

Mutual funds, particularly equity funds, have the potential to provide higher returns compared to fixed-income schemes like PPF. No fixed tenure; you can start and stop investments as per your financial goals. SIPs invest in a diversified portfolio of stocks or bonds, reducing risk. Similar to PPF, SIPs benefit from the power of compounding, with returns potentially growing significantly over time.

SIP returns are subject to market volatility. There’s no guaranteed return, and the invested capital is at risk. Unlike PPF, SIPs do not offer tax exemptions on the amount invested.

If you invest Rs 10,000 every month in PPF, you will invest Rs 1,20,000 annually. To become a millionaire, you will have to continue this investment for at least 28 years. In 28 years, you will invest Rs 33,60,000, on which you will get Rs 71,84,142 as interest and you will become the owner of a total of Rs 1,05,44,142. On the other hand, if you extend it for two more years, that is, continue investing for the entire 30 years, then you will invest a total of Rs 36,00,000 in 30 years, you will get Rs 87,60,728 as interest and you will get Rs 1,23,60,728 as maturity amount. But to continue for 30 years, you will have to extend PPF 3 times in blocks of 5 years each

If you invest Rs 10,000 in SIP, you will have to invest for at least 20 years. In 20 years, you will invest a total of Rs 24,00,000 and if calculated according to 12 percent return, you will get Rs 75,91,479 as interest. In this way, after 20 years, you will get a total of Rs 99,91,479, which is almost Rs 1 crore. On the other hand, if you continue this investment for just 1 more year, you will invest a total of Rs 25,20,000, you will get Rs 88,66,742 as interest and after 21 years you will own a total of Rs 1,13,86,742

Conclusion

PPF offers safety and guaranteed returns with tax benefits but has lower returns compared to SIPs. SIP offers higher potential returns but comes with market risk and no guaranteed returns.

With a monthly investment of ₹10,000, SIPs in mutual funds are likely to get you to the millionaire mark faster due to higher potential returns. Over 15 years, an SIP can yield significantly higher returns compared to PPF.

If you prefer a safe investment with guaranteed returns, PPF is the better choice. If you are willing to take on some risk for higher returns, SIP is the way to go.

Choosing between PPF and SIP depends on your financial goals, risk tolerance and investment horizon. Evaluate both options carefully to decide which suits your needs better.