Are you a first-time investor? Confused about which investment to choose between NPS and PPF? Read on to find the difference between NPS Vs PPF!
The National Pension Scheme and the Public Provident Fund are the two most popular investment alternatives in India. Investors generally misunderstand the two schemes when it comes to returns, interest rates, etc. To determine which is better option PPF Vs NPS, NPS Vs PPF also differ in terms of liquidity, with PPF allowing partial withdrawals after a certain period and NPS requiring investors to wait until retirement age to withdraw their funds. one first needs to know what NPS Vs PPF actually are.
Connecting with Stock Market by NPS vs PPF
Investing for the future has become an essential part of financial planning. It is crucial to save and invest for long-term financial goals, such as retirement, children’s education, or buying a house. Two popular investment options for the future are the National Pension System (NPS) and the Public Provident Fund (PPF). Both NPS and PPF are government-backed schemes and have proven to be reliable investment options for individuals.
Importance of Investing for the Future
Investing for the future is important because it helps individuals achieve their long-term financial goals. It provides a sense of financial security and allows individuals to plan for their future. Investing in schemes like NPS and PPF is considered a safe and secure option as they are government-backed and provide stable returns.
Brief Explanation: NPS Vs PPF
The National Pension System (NPS) is a government-sponsored pension scheme that was introduced in 2004. It is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) and aims to provide a regular income to individuals after retirement. On the other hand, Public Provident Fund (PPF) is a long-term savings scheme introduced in 1968 by the Indian government. It aims to provide a safe and secure investment option for individuals while also offering a tax-saving benefit.
| Criterion | PPF | NPS |
| Safety | High | Low |
| Returns | Moderate | High* |
| Liquidity | Low | Low |
| Taxation | Fully exempt | Low** |
Similarities between NPS and PPF
Both NPS and PPF are government-backed investment options that offer tax benefits. However, there are significant differences between the two schemes. NPS is a market-linked investment option, while PPF offers a fixed rate of return. NPS offers flexibility in terms of investment options, while PPF has a fixed investment period of 15 years. Additionally, NPS is a retirement-focused scheme, while PPF can be used for various long-term financial goals
Difference Between NPS vs PPF
Here are some of the NPS vs PPF differences that will help one to determine which one is best: NPS vs PPF.
| Key Features | PPF | NPS |
| Who can invest? | Any citizen of India. In order to receive tax benefits, one can register a PPF account in the name of their minor children. | NPS accounts can be opened by Indian citizens who are 18-60 years of age. |
| Are NRIs eligible for this scheme? | No | Yes |
| What is the maturity period? | A PPF account matures in 15 years. After 15 years, this term might be extended by a block of five years with or without additional contributions. | The maturity period is flexible. The NPS account allows for contributions up to the age of 60, with the option to continue investing until the age of 70. |
| What is the investment limit? | Minimum ₹500 every year, with a ₹1,50,000 limit on the overall amount. A total of 12 contributions are permitted annually. | The minimum required contribution is ₹6,000. No contribution cap applies as long as it doesn’t go over 10% of your gross annual income, or 10% of your gross total income if you’re self-employed. |
| Is premature withdrawal/partial withdrawal allowed? | After the seventh year, partial withdrawals are permitted with some restrictions. Loans throughout the third and sixth fiscal years following account opening are possible, although there are restrictions. | Account holders can withdraw money early and partially in certain situations after 10 years. To retire early, however, one must purchase a life insurance annuity using at least 80% of the accumulated corpus. |
| Can I choose how to invest my money? | No | Yes, you can select from a variety of government securities, including equity funds, fixed-income instruments, and other securities. |
| What are the returns like? | Interest rate is decided by the government. | The market influences interest rates. Consequently, potential rewards are higher. |
| Do I have to buy an annuity? | No | If the maturity amount is greater than ₹2 lakh, you must purchase an annuity worth at least 40% of the corpus. |
NPS vs PPF?
Yes, this is a challenging question. The Difference of NPS Vs PPF.
- First and foremost, the Public Provident Fund (PPF) comes to mind whenever we consider investing for a post-retirement fund. PPF is a good investment option for long-term savings since it offers secure returns over the long term and for all ages.
- But recently, the National Pension Scheme, or NPS, has also drawn a lot of interest as a means of saving for retirement.
- But which of them should you choose if you could only pick one? As you can see, NPS is a fine way to save for retirement. If your goal is to save money for other expenses like your children’s education or your daughter’s wedding, it might not be the best investment strategy.
- NPS Vs PPF differ in terms of their primary objective, with NPS aimed at providing retirement benefits and PPF focused on long-term savings and tax benefits.
- For all of these requirements, a PPF outperforms an NPS Vs PPF as the best investment scheme.
Which is Better for Financial Goals?
The choice between NPS and PPF depends on individual financial goals. If an individual wants a safe and secure investment option with a fixed rate of return, then PPF is a suitable option. On the other hand, if an individual is willing to take some market risks and wants flexibility in investment options, then NPS is a better option. Additionally, if an individual is looking for a retirement-focused scheme, then NPS is a more suitable option.
Tax Benefits of NPS vs PPF
Both NPS and PPF offer tax benefits. The contributions made towards both schemes are eligible for a tax deduction under Section 80C of the Income Tax Act. Additionally, there is an additional tax deduction of up to Rs. 50,000 under Section 80CCD (1B) for contributions towards NPS.
NPS vs PPF Comparison Table
| Features | NPS | PPF |
| Investment Type | Market-linked | Fixed rate of return |
| Investment Flexibility | Flexible | Fixed investment period |
| Investment Purpose | Retirement | Long-term savings |
| Eligibility | Anyone between 18 and 65 | Anyone |
| Investment Amount | Minimum Rs. 1,000 per year | Minimum Rs. 500 per year |
| Tax Benefits | Section 80C and 80CCD (1B) | Section 80C |
| Maximum Investment Amount | No limit | Rs. 1.5 lakh per year |
| Investment Returns | Market-linked | Fixed at 7.1% |
What is the National Pension Scheme (NPS)?
The Central Government launched the National Pension Scheme as a social security programme. Except for members of the military services, employees from the public, private, and even unorganized sectors are eligible for this pension plan. The programme encourages participants to make periodic contributions to a pension account while they are still employed. You can withdraw a specified amount of the corpus after retirement. If you have an NPS account, you will get the remaining sum as a monthly pension after you retire. For anyone who works in the private sector and needs a consistent pension after retirement, the nps vs ppf scheme is of great significance. The scheme has tax advantages under Sections 80C and 80CCD and is transferable between jobs and locations.
NPS scheme was launched to benefit the public to save money after their retirement. With the help of NPS calculator, you can now figure out how much money you can save after your retirement.
How does NPS Works?
NPS is a retirement-focused investment option that allows individuals to contribute towards their pension fund. The funds are then invested in various financial instruments, including stocks and bonds. The returns on the investments are market-linked, which means they are based on the performance of the market.
Benefits of NPS
The benefits of investing in NPS include tax benefits, flexibility, and portability. The contributions made towards the scheme are eligible for a tax deduction under Section 80C of the Income Tax Act. Additionally, there is an additional tax deduction of up to Rs. 50,000 under Section 80CCD (1B) for contributions towards NPS. NPS also offers flexibility in terms of investment options, as individuals can choose between different asset classes. Lastly, NPS is portable, which means individuals can continue with the scheme even if they switch jobs.
Eligibility Criteria for NPS
Anyone between the ages of 18 and 65 can invest in NPS. However, the minimum investment amount is Rs. 1,000 per year.
Types of NPS Accounts
There are two types of NPS Accounts:
- Tier 1 account is a mandatory account, which means individuals have to invest in this account to be eligible for tax benefits.
- Tier 2 account is a voluntary account, and individuals can withdraw money from this account at any time.
NPS Contribution and Returns
The contribution towards NPS depends on the choice of investment made by the individual. The returns on the investment are market-linked, which means they are based on the performance of the market.
What is Public Provident Fund (PPF)?
The Public Provident Fund (PPF) programme is a long-term investment choice that provides an alluring rate of interest and returns on the deposited amount. And nps vs ppf The returns and interest received are not subject to income tax. Under this plan, a PPF account must be opened, and any deposits you make throughout the year qualify for section 80C deductions.
Before opening a PPF account, you should also be aware of the following:
- PPF interest rates are currently around 7.1% p.a. Every year, the interest is compounded.
- Every year on March 31st, interest is added to the account.
- Since interest is computed on the lowest amount retained, deposits should be made between the first and fifth of the morning in order to receive the highest interest (i.e. the amount held on the 5th).
- After holding the account for a minimum of three years, you can also take a loan against it. You may be qualified for additional loans if you return the loan in full before the sixth year.
How does PPF Work?
PPF is a long-term savings scheme that offers a fixed rate of return. The funds invested in PPF are locked in for 15 years and can be extended for an additional five years.
Benefits of PPF
The benefits of investing in PPF include tax benefits, fixed returns, and safety. The contributions made towards PPF are eligible for a tax deduction under Section 80C of the Income Tax Act. Additionally, the interest earned on the investment is tax-free. PPF offers a fixed rate of return, which means individuals know the returns they will receive. Lastly, PPF is considered a safe investment option as it is backed by the government.
Eligibility Criteria for PPF
Anyone can invest in PPF, including minors. The minimum investment amount is Rs. 500 per year, and the maximum investment amount is Rs. 1.5 lakh per year.
Types of PPF Accounts
There is only one type of PPF account.
PPF Contribution and Returns
The contribution towards PPF is flexible, and individuals can choose to invest either a lump sum amount or in installments. The returns on the investment are fixed and currently stand at 7.1%.
While the National Pension Scheme is completely retirement-oriented, the Public Provident Fund can be an attractive retirement option if the account holder of the PPF fixes it for a long period of time by increasing the years of maturity period. Here know nps vs ppf . However, the Public Provident Fund is an entirely debt investment, while the National Pension System is a combination of both equity and debt.
Conclusion
Both the National Pension System and the Public Provident Fund have their purpose and benefits in any retirement portfolio and NPS Vs PPF. PPF focuses on providing a safety net for your investments with respect to strong returns. NPS, on the other hand, has a dual advantage that incorporates both capital safety and investment growth. No surprise, there is increased interest in the National Pension System, particularly in light of the system’s recommended changes, which the government intends to adopt in the months to come. Here above details of NPS Vs PPF for more information Visit Vakilsearch.
FAQ’s
1.What is NPS?
NPS stands for the National Pension System, which is a government-backed retirement-focused investment scheme that offers market-linked returns.
2 . What is PPF?
PPF stands for Public Provident Fund, which is a government-backed long-term savings scheme that offers a fixed rate of return.
3 .What are the eligibility criteria for NPS?
Anyone between the age of 18 and 65 can open an NPS account. Non-resident Indians (NRIs) are also eligible to invest in NPS, subject to certain conditions.
4. What are the eligibility criteria for PPF?
Anyone can invest in PPF, including minors. The minimum investment amount is Rs. 500 per year, and the maximum investment amount is Rs. 1.5 lakh per year.
5 .How does NPS work?
In NPS, individuals can contribute towards their retirement fund, which is invested in various asset classes such as equity, corporate bonds, and government securities. The investment returns are market-linked, and individuals have the option to choose their investment allocation based on their risk appetite.
6. How does PPF work?
In PPF, individuals can invest a fixed amount every year for a period of 15 years. The investment earns a fixed rate of interest, which is currently at 7.1%. The investment can be extended in blocks of five years after the completion of the initial 15-year period.
