Retirement Planning: How large a fund can be built by investing ₹10,000 per month in Sukanya Samriddhi, PPF, and SIP?

There are several advantages to starting retirement planning early. It provides more time for investing and allows sufficient time for your money to grow. Early in one’s career, financial responsibilities are generally lower, making it easier to invest. The question arises: if a 40-year-old individual wishes to invest for the next 15 years, what would be the best investment option?

Building a substantial fund through 15-year investments

Experts suggest that a 15-year horizon is well-suited for investing. A significant corpus can be accumulated by investing ₹10,000 every month for 15 years. There are several good options for long-term investment, including the Public Provident Fund (PPF), the Sukanya Samriddhi Yojana (SSY), and Systematic Investment Plans (SIPs) in equity-based mutual fund schemes.

Government-backed schemes: PPF and SSY

PPF and SSY are government-backed schemes that offer fixed returns. This means that before investing, you can estimate the size of the corpus you will accumulate over a specific period. As these are government schemes, they are entirely secure, with virtually no risk of losing your capital. Furthermore, the returns on these schemes are unaffected by stock market fluctuations.

Risks associated with monthly SIP investments

Investing through SIPs in equity-based mutual fund schemes is suitable for those willing to take on some investment risk. This is because such schemes channel your monthly SIP contributions into the stock market. Consequently, the returns are directly influenced by the performance of the stock market—strong market performance can lead to higher returns, while poor performance may result in lower returns. 15-Year Investment Period for SSY

Let us examine the corpus that can be accumulated over 15 years by investing ₹10,000 per month across three different investment options. We will begin with the Sukanya Samriddhi Yojana (SSY). This scheme is designed for those who have daughters. Parents can open a Sukanya Samriddhi account for a maximum of two daughters, with only one account permitted per daughter. The daughter must be 10 years of age or younger.

SSY Interest Rate: 8.2% Per Annum

The Sukanya Samriddhi Yojana offers an interest rate of 8.2% per annum. Investments in this scheme are required for a period of 15 years, and the scheme matures 21 years after the account is opened. For instance, if a daughter is currently 5 years old, a monthly investment of ₹10,000 for 15 years would result in a corpus of approximately ₹55,42,062 by the year 2047. This involves a total investment of ₹18,00,000 over 15 years, earning an interest of ₹37,42,062. The maturity amount is tax-free.

PPF Interest Rate: 7.1% Per Annum

The Public Provident Fund (PPF) scheme matures in 15 years and currently offers an interest rate of 7.1% per annum. Over 15 years, you would invest a total of ₹18,00,000, which would earn an interest of ₹14,54,567. Consequently, after 15 years, you would receive a total of ₹32,54,567. This amount is entirely tax-free. Furthermore, if you opt for the 'old tax regime' under the Income Tax Act, you may claim deductions for the amounts invested.

Building a Substantial Fund Through SIP Investments

Investing ₹10,000 per month in an equity mutual fund scheme will result in a total corpus of ₹47,59,314. This calculation assumes an annual return of 12%. In other words, over 15 years, your total investment of ₹18 lakh generates a return of ₹29,59,314, thanks to the power of compounding. However, it is important to note that you will be liable to pay capital gains tax on these earnings. The long-term capital gains tax rate is 12.5%, which amounts to a tax liability of ₹5,94,914.25. Even after accounting for this, the returns over 15 years remain higher than those offered by the Public Provident Fund (PPF) or the Sukanya Samriddhi Yojana.

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