Which plan is better for retirement - PPF or NPS?

Which plan is better for retirement – PPF or NPS?

The retirement phase can be both exciting as well as it can cause some troubles in your life. On the one hand, one can enjoy a sense of freedom by engaging in activities which can bring a sense of happiness and pride. On the other hand, with the inflating economic state, managing finance is a tedious affair. Thus, it becomes absolutely necessary to save funds for retirement.

There are various retirement schemes where one can invest their funds. NPS (National Pension Scheme) and Post office PPF( Public Provident Funds) are two popular investment schemes that offer attractive returns along with certain tax benefits on the investment as well.

Before deciding about choosing the best investment instrument for retirement, here is everything you should know about both the schemes.

What is a Public Provident Fund?

 A Public Provident Fund is a retirement benefits scheme where investors can invest their funds for a lock-in period of 15 years. If the account holders wish to keep their account active, they can do so by extending the tenure of investment after 15 years in a block of 5 years.

  • To open a PPF account, you need to invest Rs. 100 in your PPF account.
  • Investors need to deposit a minimum of Rs.500 in a financial year.
  • You can deposit a maximum of Rs. 1.5 Lakhs per financial year.
  • The rate of interest on PPF is determined by the Finance Ministry every quarter. Presently, the PPF Interest Rate stands at 7.1%.
  • You cannot withdraw funds from PPF accounts before the maturity period. Account holders can, however, close their accounts at the end of 4th financial year as specified under PPF rules.
  • Also, opening a PPF account is secure, and one can open a PPF account at a post office or public/private sector banks.
  • Under Sec 80 C of the Income Tax Act, you can get tax benefits up to Rs. 1.5 Lakhs on the amount invested in PPF.

What is the National Pension Scheme?

NPS or National Pension Scheme is also a government-backed investment scheme where employees of public/private sector can regularly invest their funds in their pension account. The account holders can withdraw the portion of the amount invested at retirement as a lump sum payment, and the remaining can be withdrawn regularly as a pension.

  • NPS accounts can be opened by any Indian resident between the age of 18 years and 60 years.
  • You need to deposit a minimum of Rs. 6000 in your NPS account.
  • There is no cap on the maximum amount that one can invest in their NPS. However, it should not exceed 10% of your income.
  • Similar to the PPF scheme, investors do not need to pay any taxes on funds invested and the amount received at the end of the maturity period.
  • You can get upto Rs. 1.5 Lakhs tax deductions on the principal amount invested in the National Pension Scheme.
  • Further, investors can withdraw funds from NPS schemes if they require funds for specific expenses such as child’s education, illness etc.

Which one is better- NPS or PPF?

 Here are some of the striking differences between the two investment schemes.

Point of DifferencePPFNPS
ReturnsIt provides guaranteed returns on your investments.The returns on the National Pension Scheme is linked to the market.
TenureThe lock-in period of PPF Scheme is 15 years.The lock-in period of NPS is retirement or 60 years.
ControlYou do not have control over the Fund Manager under PPF.You can choose the Fund Manager under NPS.
Premature withdrawalAt the end of 5th financial year.After the completion of 10 years.

Conclusion: NPS and PPF are both retirement schemes that provide attractive returns on investments. However, the rate of returns varies for NPS as per the market rates and may thus be higher than PPF.

Summary: Which plan is better for retirement – PPF or NPS?

There are various retirement schemes where one can invest their funds. NPS (National Pension Scheme) and PPF( Public Provident Funds) are two popular investment schemes that offer attractive returns along with certain tax benefits on the investment as well.

 A Public Provident Fund is a retirement benefits scheme where investors can invest their funds for a lock-in period of 15 years. To open a PPF account, you need to invest Rs. 100 in your PPF account. You can deposit a maximum of Rs. 1.5 Lakhs per financial year. The rate of interest on PPF is determined by the Finance Ministry every quarter. Presently, the PPF Interest Rate stands at 7.1%. Further, you cannot withdraw funds from PPF accounts before the maturity period. Account-holders can, however, close their accounts at the end of 4th financial year as specified under PPF rules.

NPS or National Pension Scheme is also a government-backed investment scheme where employees of public/private sector can regularly invest their funds in their pension account. The account holders can withdraw the portion of the amount invested at retirement as a lump sum payment, and the remaining can be withdrawn regularly as a pension.NPS accounts can be opened by any Indian resident between the age of 18 years and 60 years. You need to deposit a minimum of Rs. 6000 in your NPS account and there is no cap on the maximum amount that one can invest in their NPS. Similar to the PPF scheme, investors do not need to pay any taxes on funds invested and the amount received at the end of the maturity period.

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