The Buyt Desk
After retirement, along with the availability of surplus money in your bank account, you require a constant incoming stream of money. Public Provident Fund (PPF) and National Pension Scheme (NPS) are both Government-backed schemes. Both schemes provide reasonable and guaranteed returns after the tenure. However, the question is which one is a better scheme for a retired individual. The answer is not straightforward. It depends on what do you seek to achieve from your investment. Do you want to receive a big lump sum amount in your bank account when you retire or do you want a regular and fixed income in form of a pension or both? Are you ready to take a moderate risk with your capital or not? How much time, effort, and research are you ready to put into deciding your choice of investment.
Here, we compare the features of PPF and NPS to help you choose between them.
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Returns: PPF has a fixed rate of interest that the Government revises every quarter. The current rate of interest is 7.1%. NPS is market-linked, thus, it does not have a fixed rate of interest. Usually, after its tenure, it provides approximately an 8 to 10% return rate.
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Lock-in period: PPF has a lock-in period of 15 years. If you wish, the tenure can be extended, with or without contribution, in blocks of 5 years. Even a minor can have a PPF account. In the case of NPS, the corpus is accumulated until you reach the age of 60 years. You can extend the maturity of the scheme up to 70 years of age.
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Payment: In the case of PPF, the accumulated wealth is paid at the end of the tenure unless you extend the scheme. NPS provides the accumulated wealth as a pension after you are 60 years old. If you want, you can withdraw 60% of the wealth as a lump sum amount and the remaining 40% will be paid as a pension.
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Risk: PPF is a completely risk-free investment. NPS carries low to moderate risk because it is a market-associated investment. You can choose the NPS category as per your risk-taking capacity. In every category, some amount is invested in the equity market.
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Inflation: PPF does not provide cushioning against inflation. Thus, every year the rate of return will be lower. In the case of NPS, some money is always invested in the equity market, which can provide safety against inflation.
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Taxation: Both PPF and NPS enjoy the tax benefit provided under section 80CCE of the Income Tax Act i.e. tax deduction up to Rs.1.5 lakhs. However, NPS gives an extra tax benefit of additional tax deduction up to Rs.50, 000 under section 80CCD1(B) of the IT Act.
Diversification is a well-known fact in investment. Instead of choosing to put all your money in either NPS or PPF, you can invest some amount in both schemes. We are here to provide you complete financial information. However, for financial advice, do consult a certified financial expert.
