Are you worried about saving for retirement? You are not alone. Ask the situation. Two friends, Ramesh and Suresh, were confused. They wanted to raise money, but they didn’t know how. Ramesh chose the safe and guaranteed option, while Suresh chose the more risky but potentially rewarding choice. Let’s take a look at how their investments have been unfolding over 30 years and find out which options have generated a higher retirement corpus. This will help you decide on two common investment options: PPF and SIP.
Introducing a systematic investment plan
With SIP, you can invest in mutual funds by regularly giving fixed amounts. You can start investing in SIP for a small amount of Rs 100.
What is PPF?
The Public Provident Fund is a government-supported long-term savings scheme designed to help you achieve your future financial goals.
What is the current interest rate for PPF?
The Public Provident Fund offers a compound interest rate of 7.1% each year.
Tax benefits
PPF applies to tax exemptions under Section 80C. Contributions up to Rs 1.5 for the fiscal year are tax deductible.
What is the minimum investment to start a SIP?
The minimum amount to start a SIP is Rs 100. You can also increase, decrease or stop SIP.
What is the minimum investment in PPF?
The minimum deposit for the fiscal year is 500, but the maximum is 1.5 Rs.
How does SIP work?
The given amount is automatically deducted from your bank account on a regular basis, invested in a mutual fund, and earning units based on the fund’s net asset value (NAV).
How does PPF work?
The post office and bank-run scheme provides voluntary contributions to account holders. The post office offers an interest rate of 7.1% per year.
PPF calculation
Annual investment: Rs 1,40,000 (Monthly investment Rs 11666 x 12 months) Period: 30 years Annual revenue: 7.1%
PPF: What will happen to the retirement corpus in 30 years with an investment of 1,40,000 Rs/year?
For a donation of Rs 1,40,000/year, the estimated retirement corpus for 30 years is Rs 1,44,20,850.
SIP Investment Terms
Because SIP investments do not have a fixed return, debt funds use an estimated annual revenue of 8%, 10% in equity funds and 12% in hybrid funds. We also expect monthly investments of Rs 11,666 (1,40,000/12).
SIP: Retirement Corpus (Hybrid Fund) with 30 Years Monthly Investment Rs 11,666 Rs.
With an annual growth rate of 12%, the estimated corpus over the 30-year period is Rs 4,11,79,974. Meanwhile, the investment amount is Rs 41,99,760, with capital gains of Rs 3,69,80,214.
SIP: Retirement Corpus (Equity Fund) on 30 Years of Rs 11,666 Investments
With a 10% growth per year, the estimated corpus will be 2,65,90,609 Rs over 30 years. The estimated capital gains are 2,23,90,849 Rs.
SIP: Retirement Corpus (Debt Fund) for 30 Years of Rs 11,666 Investments
With an annual growth of 8%, the estimated corpus over the 30-year period is Rs 1,75,02,444. The estimated capital gains are Rs 1,33,02,684.
(Disclaimer: Our calculations are forecasts, not investment advice. Do due diligence or consult an expert about your financial planning.
