NPS Or PPF: Which Is A Better Investment Option? All You Need To Know

NPS Or PPF: Bad time doesn’t announce its arrival. In the era of rapid inflation and uncertainty, having a sound investment plan trumps everything. Many experts recommend investing early on to allow sufficient time for funds to grow and give optimum financial returns. While older generations are pretty sorted in this regard, Genz is learning it the hard way. With growing debts and EMIs, it’s vital to have a secure pool of money set aside for rough-weather days.

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Long term investments should be picked after considering low-risk options and good returns. Several government schemes also provide tax benefits. Let’s discuss two of the most favourable products - Public Provident Fund (PPF) and National Pension System (NPS)

Investors perceive both NPS and PPF as attractive options for retirement investing, given their tailored approach to wealth accumulation for retirement purposes.

PPF Vs NPS

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PPF is a government-supported scheme with assured returns, while NPS is market-based and regulated by PFRDA. NPS has the potential for higher returns from diverse market assets, aiming to beat inflation in the long run.

Both PPF and NPS offer tax benefits under Section 80C of the Income Tax Act. However, NPS provides an extra advantage for tax savings. It allows an additional deduction of up to Rs 50,000 under Section 80CCD(1B), on top of the Rs 1.5 lakh deduction available under Section 80C.

All You Need To Know About PPF

Introduced by the government in 1965, the Public Provident Fund (PPF) was designed to offer a retirement savings solution for individuals working in the unorganized sector or those not covered by the Employees’ Provident Fund (EPF) scheme. Accessible through post offices nationwide, PPF aims to broaden the availability of this investment option. With a lock-in period of 15 years and guaranteed interest rates, PPF provides a dependable choice for long-term savings.

Many risk-averse individuals favor investing in PPF due to its guaranteed returns. Presently, the interest rate on PPF investments stands at 7.1 percent.

An individual aged 18 years or above, as well as a guardian on behalf of a minor or someone of unsound mind, can open a PPF account. However, as per current rules, Non-Resident Indians (NRIs) and Hindu Undivided Families (HUFs) are ineligible to invest in PPF. Additionally, joint accounts are not permitted in the PPF scheme.

Duration and Tax Advantages of PPF

PPF accounts have an initial tenure of 15 years, after which the account holder can choose to withdraw the entire balance, close the account, or extend it for five years, with or without further contributions. This extension option is available in blocks of 5 years.

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Contributions made to PPF are eligible for tax deduction under Section 80C of the Income Tax Act. Interest earned on PPF is tax-exempt upon withdrawal. PPF falls under the EEE (Exempt, Exempt, Exempt) category, meaning the corpus after maturity is also tax-free. Currently, the maximum deduction allowed under Section 80C is limited to an investment of Rs 1.5 lakh.

All You Need To Know About NPS

National Pension Scheme: How To Open NPS Account Online, Step-By-Step Guide

NPS is a retirement scheme where individuals can contribute voluntarily, and their investments are linked to the market, including both debt and equity components. It aims to help people save for retirement and receive a pension later in life. Accounts can be opened between the ages of 18 and 60.

The minimum contribution for NPS is Rs 500 for Tier I accounts and Rs 1,000 for Tier II accounts. There is no maximum investment limit for NPS accounts.

Any Indian citizen, irrespective of their residency status, is eligible to invest in the NPS provided they meet certain criteria. The individual must be between 18 and 70 years old when applying through the Point of Presence (POP) or Point of Presence-Service Provider (POP-SP), and they must fulfill the KYC requirements.

Tax Benefits of NPS

NPS subscribers are eligible for deduction benefits of up to Rs 1.5 lakh under Section 80C. Moreover, they can avail tax exemption of up to Rs 50,000 under Section 80CCD (1B). Additionally, employers can claim a deduction under Section 80CCD (2) on their contribution towards employees' NPS accounts, limited to 10 percent of the basic salary.

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