PPF vs NPS: National Pension Scheme (NPS) is basically known as a retirement-oriented savings tool among the millennials. But, ground zero report is different. Majority of tax and investment experts say that for an investor, who wants flexibility while investing, Public Provident Fund (PPF) is a better option but for those who are investing only for their retirement, NPS is better as it yields around 10 per cent post-tax return. But it’s an irony that investors opt for NPS as an investment vehicle to save tax. Both the options are eligible for income tax deduction under Section 80C. Under section 80C, the maximum investment allowed in PPF is Rs 1.50 Lakh per annum. Additionally, an investor can avail income tax exemption up to a maximum of Rs 50,000 per annum on his or her investment in NPS under Section 80CCD (1B). However, if we compare NPS with the PPF, we found latter one is better as it maximises the returns post-retirement or after 60 years of age.
Elaborating upon the benefit while opting the NPS; Milin Shah, Head – Product Development & Planning at HappynessFactory said, “NPS is a product where one invests till 60 years of age with the option to invest till the age of 70 years. Post-retirement, the rule says that one can withdraw approximately 60 per cent of the corpus as lumpsum without any tax impact and the remaining 40 per cent will be in the form of an Annuity and will be taxable, just like any other income.”
Detailing the flexibility benefits in NPS against the PPF investment Kartik Jhaveri, Director — Wealth Management at Transcent Consultants said, “In PPF, an investor can’t invest beyond Rs 1.5 lakh while in NPS an investor can invest any amount though he or she can claim tax benefit up to Rs 50,000 in one financial year.” He said that in PPF, an investor has more flexibility as he or she can stop investment after 5 years and can withdraw the whole amount after 15 years while in NPS the whole amount is strictly fixed for a long period till the investor attains 60 years of age and the investor can’t fish out the amount in between.
Speaking on the features of the PPF and NPS Kartik Jhaveri of Transcent Consultants said, “PPF account matures after completion of 15 years. One may extend the term after 15 years by a block of another 5 years with or without making additional contributions. The maturity amount of PPF is 100 per cent tax-free. PPF is a 100 per cent Debt oriented product, guaranteed by the government, providing safety of capital. The current annual interest rate on PPF is 7.9 per cent.”