PPF vs NPS: Financial security after retirement has become a primary need for every individual in India. Given rising inflation and longer lifespans, choosing the right investment plan has become crucial. In these circumstances, the Public Provident Fund (PPF) and the National Pension System (NPS) are two options that investors rely on most. Both schemes are government-backed, but their structure, risks, and returns differ. Let’s explore these in detail.
PPF’s Role in Retirement Planning
The Public Provident Fund is considered a traditional and safe investment scheme. It is specifically designed for those who want to invest money for the long term without any risk. PPF is guaranteed by the government, making investments in it completely safe.
PPF Interest Rate, Tenure, and Tax Benefits
Currently, PPF offers an annual interest rate of 7.1 percent, which is fixed by the government every quarter. The basic term of this scheme is 15 years, which can be extended in blocks of 5 years each. A minimum annual investment of ₹500 and a maximum of ₹1.5 lakh can be made. The most important feature of PPF is that investment, interest, and maturity are tax-free. Tax exemption is also available under Section 80C.
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Which investors is PPF suitable for?
PPF is considered a reliable option for those who are risk-averse, seek stable returns, and prioritize tax-free earnings. This scheme is best suited for investors who want to build a secure fund for retirement as well as for goals like children’s education or marriage.
What is NPS, and how does it work?
The National Pension System is a modern retirement scheme launched by the government with the aim of empowering individuals financially for pension purposes. It is a market-linked scheme that invests in both equity and debt. Consequently, it offers higher returns than PPF.
Returns, Tenure, and Tax Benefits in NPS
The NPS interest rate is not fixed, as its returns depend on market performance. So far, the NPS has generated an average return of 8 to 10 percent. Investments are made until the age of 60, which can be extended to 70 if needed. There is no maximum investment limit in NPS, although tax exemption is limited to ₹1.5 lakh under Section 80C and an additional ₹50,000 under Section 80CCD(1B).
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Withdrawals and Risk Factors in NPS
The NPS does not allow for the entire corpus to be withdrawn at once. At the time of retirement, 80 percent of the corpus can be withdrawn tax-free, while the remaining 20 percent must be used to purchase an annuity for a pension. Since this scheme is market-linked, it involves both returns and risks.
Who is NPS best for?
Investors who are comfortable taking risks and want to build a large corpus along with a regular pension at retirement may find NPS beneficial. This scheme is especially suitable for young investors.
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Adarsh P
Adarsh Pal is a content writer at Timesbull Media. He specializes in writing news related to industry updates, the automotive sector, banking, telecommunications, the travel sector, and personal finance. Adarsh has previously worked with several digital media channels. He is skilled at presenting news accurately and disseminating information based on...
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