Mutual Funds vs NPS vs PPF: How soon can you become a crorepati by investing Rs 10,000 every month

view original post

Mutual Funds vs NPS vs PPF: How soon can you become a crorepati by investing Rs 10,000 every month 

New Delhi: With interest rate declining steadily in the economy, it is going to take more time for savers to accumulate a corpus of Rs 1 crore. Worth mentioning here is that anyone who invests regularly can easily become a crorepati within 20 years. Systematic investment over a long period of time can easily make you a crorepati as the power of compounding plays a big role in multiplying your wealth. 

Let us check out how much time it will take to accumulate a corpus of Rs 1 crore if you invest Rs 10,000 every month in popular investment schemes like Public Provident Fund (PPF), National Pension Scheme (NPS) and equity mutual funds (MF). 

Public Provident Fund (PPF)

PPF is the most popular long term savings instrument as it provides tax-free guaranteed returns. Also, the amount you invest every year in PPF qualifies for tax benefit under Section 80C. But in the new tax regime, the benefits of Section 80C are not available on PPF investment. A PPF account can be opened in a bank or in a post office. Unlike RDs, interest rate of PPF is the same across banks and post offices as it is decided by the government every quarter. 

Assuming that the current PPF interest of 7.1% remains constant throughout the investment period, you can accumulate Rs 1 crore in 28 years by investing Rs 10,000 at the beginning of every month. Worth mentioning here is out of the Rs 1.054 crore that you will accumulate through PPF in 28 years, around 72% come as interest and you invest only Rs 33.60 lakh over the  28 years. 

National Pension Scheme (NPS)

Of late NPS has gained popularity as a retirement saving instrument. Earlier it was open to government employees only but since 2009 it is open to all. You can either invest a lump sum or fixed amount every month in NPS. 

The average return of NPS funds over the last 10 years has been above 10% if you allocate 50% of your NPS contribution to equities and 50% to government securities. Assuming long-term compound annual growth rate (CAGR) of 10%, you may accumulate Rs 1 crore in 23 years by investing Rs 10,000 in NPS at the beginning of every month.

Mutual Fund (MF)

Equity mutual funds are considered the best instrument to create wealth faster if you can digest market volatility.  For risk-averse investors, index funds are best suited as they are less volatile and offer attractive return in the long term.  These funds have the potential to offer around 12% CAGR over the long term.

Assuming long-term CAGR of 12%, you may accumulate Rs 1 crore in 20 years by investing Rs 10,000 at the beginning of every month. You can achieve this goal even faster if you use step-up SIP facility. If you increase your monthly SIP of Rs 10,000 every year by 10% then you will be able to accumulate Rs 1 crore corpus in 16 years assuming a CAGR of 12%.

Related Posts