Public Provident Fund (PPF) is a long-term investment option, whereas Systematic Investment Plans (SIP) are a mode of investment. PPFs are low-risk, government-backed investment plans. On the other hand, SIP investment is a method that can be used to invest in all kinds of funds. For an accurate SIP vs PPF comparison, we need to understand what they are.

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SIP Benefits
Start SIP with as low as ₹1000
Start SIP with as low as ₹1000
No hidden charges
No hidden charges
Save upto ₹46,800 in Tax
Save upto ₹46,800 in Taxunder section 80 C
Zero LTCG Tax
Zero LTCG Tax^ (Unlike 10% in Mutual Funds)
Disciplined & worry-free investing
Disciplined & worry-free investing

What is PPF?

PPF, also known as Public Provident Fund, is a classic savings scheme introduced by the Government of India under the Public Provident Fund Act in 1968. PPFs have been a popular choice amongst investors as they are low-risk and relatively safe due to backing from the government. They also offer investment flexibility, as the investor can invest at any point for any amount less than Rs. 1.5 Lacs throughout the year. 

Salient Features of PPF

The most prominent features of PPF are as follows:

  • Low-risk investment as it is government backed

  • Tax-free benefits on returns and interests under Section 80C

  • Annual Investment of minimum Rs. 500 and maximum of 1.5 Lacs to keep it active

  • Compound Interest applied annually yields higher returns

  • Withdrawals can be made under specific conditions, the 7th year onwards

  • Option of extending for 5 years after the expiration of the tenure

  • Investments have to be made at least once a year and at most 12 times per year

  • The interest rate will be evaluated on the lowest amount from the 5th to the end of the month

  • Does not offer a lot of liquidity, since it has a lock-in period of 15 years

What is SIP?

As the full form of SIP is self-explanatory, it is a method of investment rather than an investment plan.The other mode of investment in funds is to pay a lump sum. SIP can be used to invest in any kind of fund and requires regular investments, depending on the type of fund and company chosen. You can invest either monthly, quarterly, bi-annually, or yearly, as per your plans’ terms and conditions. This mode of investment is great for enforcing a savings habit in the long run.

Salient Features of SIP

The most prominent features of SIP are as follows:

  • Liquidity depends on the fund chosen

  • Can yield higher returns if market conditions are good

  • Investment frequency as per the plan opted

  • Compounding interest can add up to give high interests 

  • Tax-free in most cases apart from the ELSS scheme

  • High-risk as most funds are subject to market values

  • Does not have a lock-in period except in specific cases

SIP vs PPF: A Comparison

Parameters PPF SIP
Objective A PPF is suitable for only long-term investments that come with a tenure of 15 years or more. Investing through SIPs is ideal for all long-medium-short-term goals. They are ideal for wealth creation and fulfillment of goals.
Interest Rates It is currently 7.1% but is changed by the government each quarter. Can fluctuate based on the equity market performance and asset allocation strategy market. 

Usually between 12-18%

Safety and Security Since it is backed by the government, it is comparatively less risky.  The risk depends on the type of funds invested and the investment duration.
Tenure  It has a fixed term of 15 years, which can be extended to another 5 years after its expiration. It generally does not have a fixed term, although some may have a lock-in period of 3 years.
Investment Amount Amounts ranging from Rs. 500 to 1.5 Lacs can be invested yearly.  Minimum amount changes with each fund.
Investment Frequency Investment has to be made at least once and a maximum of 12 times a year for the entire term. Depending on the plan chosen and the requirements of the company, it can be paid monthly, quarterly, bi-annually, or yearly.
Liquidity PPF isn't the most liquid investment, as you can only withdraw after 7 years under specific conditions SIP apart from the ones that have a lock-in period can be very liquid and withdrawn at any point. There may be penal charges though
Tax Benefits PPF is exempted from tax deductions under Section 80C Some types of SIPs can be taxable under specific conditions, whereas long-term equity gains are tax-free.

SIP or PPF: Which is Better?

SIP or PPF- which is better is the common question one asks while deciding where to invest. Comparing a method of investing in market-linked investments with a fixed-income investment is a difficult task. However, if you are looking for absolutely risk-free investments, you can opt for PPF, whereas, if you are willing to take a moderate risk to earn higher returns, you can invest in long-term SIP. It is suggested to explore best SIP plans list before taking investment decision.

SIP vs PPF Calculator

A SIP vs PPF calculator is an online tool that allows you to estimate the return you would attain at the end of the investment. These calculators are especially beneficial if you want to calculate within seconds the amount you need to invest to receive a certain maturity amount. 

These online simulations can reduce the effort and time it might take one to calculate using specific formulas. 

SIP Calculator

A SIP calculator is a financial tool that easily predicts the amount of money you would receive at the end of your SIP investment tenure. These investments can be made regularly with the required amount, depending on your plan's terms and conditions.

The formula of SIP calculation is rather complex and this tool not only simplifies the calculation but also saves time. 

For example, you are planning to invest in a fund that requires you to pay installments monthly for a term of 5 years. If the rate of interest is 12% p. a., and you wish for a maturity amount of 5 Lacs, you can easily estimate the amount you would need to invest. You would need to invest a monthly price of Rs. 6062.

PPF Calculator

A PPF Calculator is another online calculator that allows you to calculate the amount you would get in return for the regular installments at the prefixed rate of interest. This tool can also save time and effort from attempting complex formulas to estimate the amount you would need to invest regularly to get the desired maturity benefit. 

With the rate of interest changing every quarter, it can be hard to keep up with the returns on your PPF account. You can use it to keep track of the maturity benefit, every time the rate of interest changes.

For instance, if you need an amount of 5 Lacs as a Maturity benefit, and you want to invest only once every year. You would need to invest Rs. 18,450 yearly for 15 years to gain a maturity benefit of 5 Lacs at the current 7.1% interest.

SIP vs. PPF Calculator

You can use the SIP vs PPF calculator to gain a better understanding of how much the return might be and if that is suitable for your requirements. The online tools follow these formulas to compute the Maturity benefit in both PPF and SIP.

SIP Calculator PPF Calculator
MA = AI x ( { [1 + i ] n - 1} / i ) x (1 + i ) MA = AI ( { [ 1 + i ] x n } - 1 ) / i

MA - Maturity Amount, AI - Amount Invested at regular intervals, 

i - Rate of Interest, n - Number of Payments

To Conclude

To decide between SIP investment or PPF which is better, you need to consider what your requirements are. The financial conditions, risk appetite, and income vary from individual to individual, it's your call to first analyze your requirements, and take a call according to your situation.

+For Mutual Fund midcap category Returns & for Insurance midcap fund category Returns-
*Past 10 Year annualised returns as on 01-12-2023
*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
~Source - Google Review Rating available on:-
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

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