When planning for retirement and aiming to build a significant retirement fund, both the National Pension System (NPS) and Public Provident Fund (PPF) are good investment choices. However, the decision between the two depends on your specific financial goals and preferences.
When planning for retirement and aiming to build a significant retirement fund, both the National Pension System (NPS) and Public Provident Fund (PPF) are good investment choices. However, the decision between the two depends on your specific financial goals and preferences.
Which Investment Option is Better for Retirement Planning?
When deciding between the National Pension System (NPS) and Public Provident Fund (PPF) for retirement planning, which investment option is better? If your goal is to build a corpus exceeding Rs 1 crore, are both NPS and PPF suitable investment choices? What are the minimum and maximum investment limits for both, and what returns do they offer? How do their tax benefits compare? To make an informed decision, let's read about key aspects of PPF and NPS.
For NPS vs PPF
• The minimum annual investment in NPS is Rs 6,000, with no upper limit on investment.
• In contrast, the minimum annual investment for a PPF account is Rs 500, and the maximum allowable investment per year is Rs 1.5 lakh.
PPF Calculator Example
If someone begins investing in PPF at age 30 and continues until age 60, totalling 30 years (15 years minimum lock-in plus three extensions of 5 years each), which equals 360 months, a monthly investment of Rs 12,500 or annual savings of Rs 1.5 lakh at an interest rate of 7.1% would yield a corpus exceeding Rs 1.5 crore.
Tax Benefits of NPS vs PPF
Investments in PPF up to a maximum of Rs 1.5 lakh annually are tax-free under section 80C. Moreover, both the interest earned and the maturity income are completely tax-free.
In contrast, NPS offers tax exemptions up to Rs 2 lakh annually (Rs 1.5 lakh under section 80C + Rs 50,000 under section 80CCD(1B)). At the time of maturity, 60% of the total corpus withdrawn is tax-free, while the remaining 40% is taxed based on the individual's applicable tax slab.
Eligibility and Investment Freedom in NPS vs PPF
Anyone between the ages of 18 to 70 years, including NRIs, can open an NPS account. On the other hand, any Indian citizen above 18 years of age is eligible to open a PPF account, but NRIs are not allowed to opt for PPF.
NPS offers the flexibility to choose your investment portfolio. Investors can decide how their funds are invested. On the other hand, PPF does not provide such investment freedom, as the investment is managed according to government-set guidelines.
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