Compare SIP in mutual funds with PPF for long-term wealth creation. Understand returns, risk, taxation, and which option suits your financial goals better.
SIP in mutual funds or PPF? This is one of the most common dilemmas for Indian investors planning long-term goals.
Both are excellent for wealth creation, but they serve different purposes and suit different investor profiles. Let's compare them comprehensively.
Quick Comparison
| Feature |
SIP (Equity MF) |
PPF |
| Returns |
10-14% (variable) |
7.1% (fixed) |
| Risk |
High (market-linked) |
Zero (govt guaranteed) |
| Lock-in |
None (ELSS: 3 years) |
15 years |
| Tax on investment |
80C (ELSS only) |
80C |
| Tax on returns |
12.5% LTCG above ₹1.25L |
Tax-free |
| Liquidity |
High |
Low (15-year lock-in) |
Calculate both options: Use our SIP Calculator and PPF Calculator.
Returns Comparison
Historical Performance
| Investment |
10-Year CAGR |
15-Year CAGR |
20-Year CAGR |
| Nifty 50 |
12.5% |
13.2% |
14.8% |
| Nifty Next 50 |
14.1% |
15.2% |
16.1% |
| Flexi-cap funds (avg) |
13-15% |
14-16% |
15-17% |
| PPF |
7.8% |
8.2% |
8.5% |
SIP in equity has delivered 5-8% higher returns than PPF historically.
₹10,000/Month for 15 Years
| Investment |
Return |
Corpus |
Growth Multiple |
| SIP (12% CAGR) |
Variable |
₹50.5 L |
2.8x |
| SIP (14% CAGR) |
Variable |
₹59.9 L |
3.3x |
| PPF (7.1%) |
Fixed |
₹32.6 L |
1.8x |
SIP creates 55-84% more wealth over 15 years at historical returns.
Same Investment, Different Outcomes
| Monthly Investment |
Period |
SIP (12%) |
PPF (7.1%) |
Difference |
| ₹5,000 |
15 years |
₹25.2 L |
₹16.3 L |
+₹8.9 L |
| ₹10,000 |
15 years |
₹50.5 L |
₹32.6 L |
+₹17.9 L |
| ₹12,500 |
15 years |
₹63.1 L |
₹40.8 L |
+₹22.3 L |
Risk Comparison
SIP Risk Profile
| Risk Type |
Level |
Explanation |
| Market risk |
High |
Value fluctuates daily |
| Short-term volatility |
High |
Can drop 30-50% in crashes |
| Long-term risk |
Moderate |
15+ years usually positive |
| Inflation risk |
Low |
Returns typically beat inflation |
PPF Risk Profile
| Risk Type |
Level |
Explanation |
| Market risk |
Zero |
Government guaranteed |
| Interest rate risk |
Low |
Rates revised quarterly |
| Inflation risk |
Moderate |
May not beat inflation well |
| Default risk |
Zero |
Sovereign guarantee |
Worst-Case Scenarios
| Scenario |
SIP Impact |
PPF Impact |
| 2008-type crash |
-50% temporarily |
No impact |
| High inflation |
Returns beat inflation |
May underperform inflation |
| Recession |
Temporary decline |
Stable |
| Interest rate drop |
Typically benefits |
Returns fall |
Tax Treatment
Contribution Phase
| Investment |
Tax Benefit |
Annual Limit |
| ELSS SIP |
80C deduction |
₹1.5 L |
| Non-ELSS SIP |
None |
No limit |
| PPF |
80C deduction |
₹1.5 L |
Both qualify for 80C (ELSS/PPF), but PPF is more restrictive (₹1.5 L max).
Withdrawal Phase
| Investment |
Tax Treatment |
| SIP (Equity, > 1 year) |
12.5% LTCG above ₹1.25 L/year |
| SIP (Equity, < 1 year) |
20% STCG |
| PPF |
Completely tax-free (EEE) |
After-Tax Returns Comparison
₹10,000/month for 15 years:
| Investment |
Pre-tax Corpus |
Tax |
Post-tax |
| SIP (12%) |
₹50.5 L |
~₹2.8 L* |
~₹47.7 L |
| PPF (7.1%) |
₹32.6 L |
₹0 |
₹32.6 L |
*Tax assumes systematic withdrawal over years, utilizing annual ₹1.25 L exemption.
SIP still ahead by ₹15 L even after taxes.
Liquidity Comparison
SIP Liquidity
| Action |
Timeframe |
Penalty |
| Stop SIP |
Immediate |
None |
| Partial redemption |
T+2-3 days |
Exit load (if any) |
| Full redemption |
T+2-3 days |
Exit load (if any) |
| ELSS redemption |
After 3-year lock-in |
None |
PPF Liquidity
| Action |
Timeframe |
Conditions |
| Stop contributions |
Allowed (min ₹500/year) |
Account stays active |
| Partial withdrawal |
After Year 7 |
50% of Y5 balance max |
| Loan |
Years 3-6 |
At interest + 1% |
| Full withdrawal |
After 15 years |
Complete maturity |
| Premature closure |
After 5 years |
-1% interest penalty |
SIP offers far superior liquidity for emergencies.
Goal-Based Suitability
SIP Better For
| Goal |
Why SIP Works |
| Retirement (20+ years) |
Higher returns compound more |
| Child's education (15+ years) |
Growth outweighs volatility |
| Wealth creation |
Market participation essential |
| Medium-term (5-10 years) |
Balanced/hybrid SIPs available |
PPF Better For
| Goal |
Why PPF Works |
| Extremely conservative investors |
Zero risk tolerance |
| Tax-free goal (house down payment) |
EEE status |
| Guaranteed amount needed |
Marriage, specific purchase |
| Already maxed equity exposure |
Diversification into debt |
The Hybrid Approach
Why Use Both?
| Benefit |
Explanation |
| Risk diversification |
Equity (SIP) + Debt (PPF) |
| Tax optimization |
Use both 80C limits |
| Liquidity balance |
SIP accessible, PPF forced savings |
| Return optimization |
Higher returns (SIP) + Guaranteed (PPF) |
Suggested Allocations by Risk Profile
| Profile |
SIP |
PPF |
Rationale |
| Aggressive |
80% |
20% |
Growth priority |
| Moderate |
60% |
40% |
Balanced |
| Conservative |
40% |
60% |
Safety priority |
| Very conservative |
20% |
80% |
Minimal risk |
Age-Based Allocation
| Age |
SIP Allocation |
PPF Allocation |
| 25-35 |
70-80% |
20-30% |
| 35-45 |
60-70% |
30-40% |
| 45-55 |
50-60% |
40-50% |
| 55+ |
30-40% |
60-70% |
Real Scenarios
Scenario 1: Child's Education (18 Years)
Goal: ₹50 L | Monthly Investment: ₹8,000
| Option |
Return |
Corpus |
Achieves Goal? |
| 100% SIP (12%) |
Variable |
₹63.3 L |
Yes, with buffer |
| 100% PPF (7.1%) |
Fixed |
₹34.7 L |
No |
| 70% SIP + 30% PPF |
Mixed |
₹53.2 L |
Yes |
Recommendation: Majority in SIP for 18-year goal.
Scenario 2: Retirement (25 Years)
Goal: ₹2 Cr | Monthly Investment: ₹15,000
| Option |
Return |
Corpus |
Achieves Goal? |
| 100% SIP (12%) |
Variable |
₹1.87 Cr |
Nearly |
| 100% PPF (7.1%) |
Fixed |
₹77.7 L |
No |
| 60% SIP + 40% PPF |
Mixed |
₹1.43 Cr |
No |
Recommendation: Higher SIP allocation needed for ₹2 Cr goal.
Scenario 3: House Down Payment (7 Years)
Goal: ₹20 L | Monthly Investment: ₹20,000
| Option |
Return |
Corpus |
Achieves Goal? |
| 100% SIP (12%) |
Variable |
₹25.3 L |
Yes, but risky |
| 100% PPF (7.1%) |
Fixed |
₹20.9 L |
Yes |
| Balanced fund SIP (10%) |
Moderate |
₹23.2 L |
Yes |
Recommendation: For fixed goals, PPF or balanced funds safer.
Common Mistakes
1. Avoiding SIP Due to Short-Term Volatility
| Mistake |
Reality |
| "SIP is risky" |
15+ year SIP rarely negative |
| "I'll lose money" |
Volatility ≠ permanent loss |
Solution: Focus on long-term (7+ years) for SIP.
2. PPF for Short-Term Goals
| Mistake |
Impact |
| Using PPF for 5-year goal |
15-year lock-in misaligned |
| Ignoring liquidity need |
Forced premature withdrawal |
Solution: Use liquid/debt funds for short-term.
3. All-or-Nothing Approach
| Mistake |
Better Approach |
| 100% SIP |
Add PPF for stability |
| 100% PPF |
Add SIP for growth |
Solution: Use both based on risk profile.
4. Comparing Wrong Timeframes
| Comparison |
Fair? |
| 1-year SIP vs PPF |
No (SIP volatile short-term) |
| 15-year SIP vs PPF |
Yes (fair comparison) |
Solution: Compare over 10+ year horizons.
Tax-Saving Specific: ELSS vs PPF
For 80C Deduction
| Feature |
ELSS SIP |
PPF |
| Lock-in |
3 years |
15 years |
| Returns |
12-15% |
7.1% |
| Risk |
High |
Zero |
| Tax on returns |
12.5% LTCG |
Tax-free |
Which for 80C?
| Profile |
Recommendation |
| Can handle volatility |
ELSS (higher returns) |
| Need guaranteed |
PPF (zero risk) |
| Optimal approach |
Split between both |
₹1.5 L/Year for 80C
| Allocation |
ELSS |
PPF |
Expected Corpus (15 years) |
| All ELSS |
₹1.5 L |
₹0 |
₹63 L |
| 50-50 |
₹75 K |
₹75 K |
₹48 L |
| All PPF |
₹0 |
₹1.5 L |
₹41 L |
Conclusion
| Factor |
SIP Wins |
PPF Wins |
| Returns |
✓ |
|
| Safety |
|
✓ |
| Liquidity |
✓ |
|
| Tax on returns |
|
✓ |
| Flexibility |
✓ |
|
| Guaranteed amount |
|
✓ |
Final Recommendations
| Your Situation |
Best Choice |
| 15+ year goal, can handle risk |
SIP (70%) + PPF (30%) |
| 10-15 year goal, moderate risk |
SIP (50%) + PPF (50%) |
| < 10 years, need certainty |
PPF or balanced funds |
| Need guaranteed amount |
PPF |
| Already have PPF, want growth |
Add SIP |
| Already have SIP, want safety |
Add PPF |
The bottom line: For long-term wealth creation (10+ years), SIP typically delivers significantly higher returns than PPF. But PPF provides unmatched safety and tax efficiency. The optimal approach for most investors is to use both—SIP for growth, PPF for guaranteed stability.
Compare your options: Use our SIP Calculator and PPF Calculator to see potential returns for your specific investment amounts.
