Mutual Fund SIP vs PPF: What Rs 1.5 lakh annual investment will yield in 15 years; check the calculations
When it comes to long-term investing, both Public Provident Fund (PPF) and Mutual Fund Systematic Investment Plans (SIPs) offer disciplined ways to build wealth. But how do they compare if you invest Rs 1.5 lakh annually for 15 years?
PPF is a government-backed savings scheme that currently offers a fixed interest rate of 7.1% per annum, compounded annually. With an annual investment of Rs 1.5 lakh — the maximum allowed — your total contribution over 15 years would be Rs 22.5 lakh. At 7.1% interest, the maturity amount would be approximately Rs 40.8 lakh. The returns are tax-free, and the investment is considered extremely safe.
On the other hand, a mutual fund SIP investing Rs 12,500 per month (which totals Rs 1.5 lakh per year) in an equity fund with an average annual return of 12% could yield a much larger corpus. Over 15 years, this would also total Rs 22.5 lakh in investments but could grow to about ₹63.9 lakh. However, mutual fund returns are market-linked and not guaranteed.
PPF vs Flexi cap funds
When comparing PPF (Public Provident Fund) and flexi cap mutual funds, the key difference lies in risk and return potential. PPF is a government-backed savings scheme offering fixed, tax-free interest (currently 7.1%) with a 15-year lock-in. It’s ideal for conservative investors seeking capital safety, guaranteed returns, and tax benefits under Section 80C. The risk is minimal, but so is the growth potential—making PPF more suited for wealth preservation than aggressive accumulation.
Flexi cap mutual funds, on the other hand, invest across large-, mid-, and small-cap stocks, offering diversified exposure to equity markets. They carry higher risk due to market fluctuations but also provide a better shot at inflation-beating returns. Historically, flexi cap funds have delivered 10–15% annualized returns over long periods. Unlike PPF, there’s no fixed return or capital protection, and gains are subject to market performance and taxation. For long-term wealth creation, especially for investors with moderate to high risk tolerance, flexi cap funds can significantly outperform PPF—though they come with the volatility of equity markets.
Investing in Flexi cap funds
Flexi Cap funds, which offer diversified exposure to large, mid, and small-cap stocks, have grown popular for their balanced risk-return profile. The expense ratio for top-performing funds over three years is 0.81%, dropping to 0.61% over five years, indicating efficient cost management over time.
Investors looking to maximise their returns with a Rs 1.5 lakh investment over 15 years might consider the Motilal Oswal Flexi Cap Fund – Direct Plan. This fund currently leads with the highest one-year return percentage, signalling robust recent performance.
Among the funds with the largest net assets, the ITI Flexi Cap Fund – Direct Plan leads with Rs 939 crore. Not far behind are the LIC MF Flexi Cap Fund – Direct Plan and TRUSTMF Flexi Cap Fund – Direct Plan, with net assets of Rs 875 crore and ₹863 crore, respectively. These funds, with substantial asset bases, suggest stability and capacity for managing large investments. Such funds offer a promising vehicle for long-term growth, benefiting from a diversified portfolio that can withstand market fluctuations.
For those assessing SIP returns, the HDFC Flexi Cap Fund – Direct Plan stands out over three and five years, delivering 24.01% and 25.93% respectively. Meanwhile, the Quant Flexi Cap Fund – Direct Plan impresses with a five-year return of 38.17%, the highest among its peers. These figures illustrate the potential for compound growth through systematic investment plans, providing investors with a disciplined approach to wealth accumulation.
Despite facing strong competition, some funds have outperformed others significantly. For instance, the Franklin India Flexi Cap Fund – Direct Plan recorded a five-year return of 30.57%, while the Parag Parikh Flexi Cap Fund – Direct Plan yielded 31.43%. The market’s competitive landscape is further demonstrated by other contenders like the PGIM India Flexi Cap Fund – Direct Plan, which achieved a 28.25% return over five years. These returns underscore the importance of selecting funds with strong historical performance and management.
SIP calculations
Time period: 15 years
Expected Rate of Interest: 12% (Taking an average)
Invested amount: Rs 22.5 lakh
Estimated returns: Rs 36.99 lakh
Maturity value: Rs 59.49 lakh
PPF calculations
Yearly investment: Rs 150,000
Time period: 15 years
Rate of Interest: 7.1%
Invested amount: Rs 22,50,000
Total interest: Rs 18,18, 209
Maturity value: Rs 40.69 lakh
Risk factor
While PPF scores high on safety and tax benefits, mutual fund SIPs offer the potential for significantly higher returns. The right choice depends on your risk appetite and financial goals. Ideally, a balanced approach using both could work best.
SIPs are subject to market fluctuations, therefore, returns are not assured. The projected 12% return is an approximation,n and actual returns can differ based on market dynamics.
On the other hand, PPF provides assured returns with a fixed interest rate that is lower compared to SIPs.
Investors evaluating flexi cap funds must consider the broader economic context and market trends. The ability to switch between capitalisations offers flexibility, making these funds attractive amidst economic uncertainties. While selecting a suitable fund, potential investors should examine metrics such as returns, asset size, and expense ratios carefully. The current market environment, characterised by both opportunities and challenges, places a premium on strategic fund selection to achieve long-term financial goals.