PPF vs SIP? Which is better for Retirement planning?

New Delhi: Systematic Investment Plan (SIP) vs Public Provident Fund (PPF) –  which is better for retirement planning? Let’s try and settle this debate for once and for all. To answer this question, we have considered two factors: the first is SIP in an equity mutual fund and second is off-course PPF. Following are basic parameters based on which we have done a thorough analysis of the two investment avenues.

Risk and Returns

SIP would give higher returns but comes with inherent risks as funds are invested in stock market which can be volatile. Generally, long term mutual funds have given 12 per cent return in India.
PPF investment is secure as it comes with sovereign guarantee. Plus, there is no volatility factor in PF as rate of interest is fixed by the government. Currently, for April-June quarter of financial year 2024-25, the PPF interest is 7.1 per cent

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Investment Tenure and Flexibility

Money can be withdrawn anytime in case of SIP in mutual funds.
But, the PPF lock-in period is 15 years. The investor has to wait for longer time period to withdraw money from PPF.

Taxation

The PPF investor is not liable to pay tax on investment amount, interest earned and the maturity amount.
While, in case of equity mutual funds although no tax is levied on the investment amount, but the investor is liable to pay tax on capital gains made. Short term capital gains tax is levied at the rate of 15 per cent. While, long term capital gains tax of 10 per cent is levied on equity funds. But, LTCG tax is levied only if the capital gains made in a particular fiscal is in excess of Rs 1 lakh.

PPF vs SIP Calculator

We have used PPF vs SIP Calculator to find out which is a better retirement scheme out of the two. Lets assume that there are two scenarios:

SIP vs PPF: which is better for Retirement Planning?

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In one scenario, a person invests Rs 10,000 per month in PPF for 15 years. And, in the other scenario, he uses the same amount for SIP in an equity oriented fund. On assumption that the equity fund would generate annualised return of 12 per cent over the course of 15 years, he would be able to accumulate a corpus of Rs 50.45 lakh in the end. And, he would get an overall interest amount of Rs 32.45 lakh.

But, if that individual invests the same amount in PF for 15 long years. Then, under consideration that the rate of interest on PPF remains nearabout same as the current rate of 7.1 per cent , he would be able to accumulate only Rs 31.55 lakh corpus at the end of 15 years tenure. This would be Rs 18.9 lakh lesser amount as compared to what he would accumulate from equity mutual fund SIP. Plus, the total interest amount generated in PPF would be Rs 13.55 lakh, which is  139 per cent lower than what he would make in mutual funds. (Important note: Mutual Funds are subject to market risks.)

(Disclaimer: This article is only meant to provide information. News9live.com does not recommend buying or selling shares or subscriptions of any IPO and Mutual Funds.)

 Systematic Investment Plan (SIP) vs Public Provident Fund (PPF): As per the estimated Mutual Fund SIP calculator, returns are expected to be around 12 per cent, while the current interest rate on PPF investments is 7.1 per cent.  Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today