Everyone is naturally worried about their future; Therefore, we often turn to investments as a means of financial security. This is especially true for salaried people who work till the age of 62, after which they have to rely on their personal savings to make ends meet. Although there are many avenues available for this purpose, most people prefer to invest in either Systematic Investment Plan (SIP) or Public Provident Fund (PPF). But, we often find it difficult to differentiate between the two and decide which option is truly better for long-term investments. So, today let us help you decide which of these two options will be more beneficial for you.
What is PPF?
First and foremost, it is important to understand what PPF actually is. The full name of PPF is Public Provident Fund. It is a popular long-term savings scheme sponsored by the Government of India. PPF offers tax-free returns over a tenure of 15 years. This is a great option for retirement planning. Since PPF is a government-backed scheme, it is considered a safe and secure savings or investment plan.
What is SIP?
Now, let’s talk about SIP. The full name of SIP is Systematic Investment Plan. It is a type of mutual fund investment that has become a preferred option for many investors. Mutual funds can be created for both short and long term investments. Under SIP, you invest a small, fixed amount every month. The returns from SIP completely depend on market fluctuations. Unlike PPF, SIP returns are not tax-free; Additionally, when you decide to withdraw your money, the returns you receive are calculated based on the current market price at that time.
PPF vs SIP
Both PPF and SIP are great options for long-term investments. However, since PPF is a government-sponsored scheme, its returns are fixed and guaranteed. With PPF, you can expect to earn returns based on a fixed interest rate—which is currently fixed at 7.1%. In contrast, SIP returns are not fixed; It is an instrument with high return potential that is directly linked to market performance. SIPs usually give returns of 10% to 14%. In PPF, your principal amount remains safe, whereas there is no guarantee of returns from SIP.
Which investment will have the highest growth in 10 years?
Do you know that if you invest ₹10,000 in SIP every year for 10 years, how much will your investment grow to? Since SIPs typically offer compounded returns of 12% to 15%, you can expect to get a pretty good return on your investment. Specifically, if the rate of return is assumed to be 12%, an investment of ₹1 lakh can grow to approximately ₹1.75 lakh. Conversely, if you deposit the same amount in a PPF account, your returns will be calculated based on the current interest rate of 7.1%.
