NPS vs. PPF – Which is a better retirement option?

NPS vs. PPF

A retirement corpus is the most important fund you will amass in your lifetime. A well-thought-out retirement plan that is supported by a sizable corpus gives you the ability to not only be financially independent and maintain a suitable lifestyle without worrying about expenses after retirement but also to be able to meet any unexpected expenses in the form of medical emergencies or just to provide oneself a hedge against inflation.

The National Pension System (NPS) and the Public Provident Fund (PPF) are two of the most popular retirement corpus-building plans. But how do you choose between them? Let us learn about both, compare them, and find out.

What is NPS?

The National Pension System, established in 2004 by the Pension Fund Regulatory and Development Authority (PFRDA), is a retirement plan backed by the central government. It is voluntary, and your contributions are pooled in a pension fund. It is an excellent choice for a systematic investing strategy for any working person. The NPS scheme is designed to give a steady and consistent income after retirement.

The minimum annual payment is Rs1,000, and the minimum amount per contribution is Rs. 500. Any Indian citizen (including NRI and OCI for Tier-1) between 18 and 70 may apply for an NPS.

 What is PPF?

The Public Provident Fund (PPF) program is a long-term investment option that offers a favourable rate of return on investment. The interests from PPF are not taxed under the Income Tax Act. Under this system, you must create a PPF account, and the amount invested throughout the year is deductible under section 80C of the Income Tax Act.

PPF was created in India in 1968 to mobilize modest savings in the form of investments with a return. It is also known as a savings-cum-tax savings investment vehicle since it allows you to save on yearly taxes while building a retirement corpus.

NPS vs. PPF – The difference

  • A PPF account has a 15-year maturity period. You may extend this period after 15 years by five years, with or without contributing further. The maturity period of an NPS is not specified. For example, you may contribute to an NPS account until you are 60, with the option to continue investing until you are 75.
  • The minimum yearly investment in a PPF is Rs 500, with a maximum investment of Rs 1,50,000. A total of 12 deposits are permitted each year.

The minimum contribution needed for NPS per annum is Rs 1,000. Contributions are unlimited only the tax benefits are defined.You can estimate returns by using NPS calculator.

  • Partial withdrawals are permitted in PPF after the seventh year, subject to certain restrictions. Loans are accessible during the third and sixth years after account establishment but are subject to requirements. Under certain conditions, account holders in NPS are entitled to early, partial withdrawal after 3 years. To quit before retirement, the condition is of 5 years of holding an active NPS PRAN. However, at least 80% of the accrued corpus must be used to purchase any annuity plan and 20% will be lumpsum withdrawal without any tax incidence.

Conclusion

The above pointers discuss the main differences between NPS and PPF. The final decision should be based on how these factors fit your goals and risk appetite.

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