PPF vs NPS - Which Fits Your Retirement Goals

PPF vs NPS! The National Pension Scheme and Public Provident Fund, or say, NPS and PPF, are both government-backed retirement saving schemes. Both of them encourage the public to regularly save funds to secure their post-retirement life. Every time we think of saving for a post-retirement fund, the Public Provident Fund (PPF) is the first to come to the mind. However, the National Pension Scheme or NPS has also been gaining attention for making retirement savings.

What if you could choose only one of PPF and NPS? Which one should it be – PPF for retirement or NPS for retirement?

Take a look at what situations help you enjoy tax benefits from personal loans.

What is PPF (Public Provident Fund)?

The Public Provident fund (PPF) is a government-funded scheme. It provides guaranteed returns on your investment through compound interest. It comes with a lock-in period of 15 years to help you build your retirement corpus over a long investment horizon. This scheme is considered an ideal choice for those looking for a risk-free investment.

Anyone can join the PPF scheme as well as invest in a PPF account. This will ensure a secure financial backup and also let you enjoy tax benefits in the process. When the deposits in a PPF account are up to Rs.1.5 lakh a year, one gets to enjoy tax exemption under section 80C of the Income Tax Act, 1961.

Minimum investment is of Rs 500 and maximum of Rs.1.5 lakh a year. Up to 12 deposits are permissible annually. Account maturity requires 15 years. PPF allows withdrawals after 5 consecutive years of active operation and this is when you need to pay higher education fees or to take care of medical emergencies.

PPF: Features, Benefits

A citizen of India, aged above 18 years is eligible to open a PPF account and invest in it. However, one can have an additional PPF account on behalf of one with an unsound mind or a minor (less than 18 years in age). The scheme is not available to Non-Resident Indians (NRIs) or Hindu Undivided Families (HUFs). One person can have only one PPF account to his/her name. Joint accounts are not allowed.

Guaranteed Returns

A major benefit, it also carries less risks of loss of money. It provides adequate returns, and non-payable debts, if any, are not permitted to be forwarded to any court order further.

Flexible Investment Amount

Returns are the most important aspect to consider when talking of investments. And a PPF account offers good returns. One can pay a certain amount each month or instead choose to deposit an entire amount at any one time of the year. Interest earned on the PPF account is at 7.1%, and it is compounded annually.

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Tax Benefits

PPF is one of the best tax-exempt products available. From contributions to returns, it is tax-free. Moreover, PPF offers a safer and more tax-efficient environment if you are looking to grow savings with guaranteed returns.

What is NPS (National Pension Scheme)?

A government-sponsored, market-linked pension scheme, NPS lets you earn high returns from your investments over the long term under a government-regulated mechanism. One can invest in NPS to earn a regular pension post-retirement, simultaneously saving on income taxes.

It provides the security of pension to the organized as well as unorganized workforce alike. NPS aims to provide financial security in retired life and also help one grow his/her money.

Payments towards NPS entitle you to a tax deduction of up to Rs.1.5 lakh as per section 80C of the Income Tax Act, 1961. An additional Rs 50,000 tax exemption is also available under section 80CCD(1B).

NPS: Features, Benefits

Being within 18-70 years when applying POP/POP-SP is required. Some relevant documents are also needed for KYC.

Easy to Access and Use

NPS comes with a user-friendly platform, easy to use and access. It is simpler to manage withdrawals, contributions and investment strategies. The account is accessible online anytime, hence increasing convenience and transparency.

Professional Fund Management

Experienced pension fund managers manage these NPS funds. They target return maximization with minimising risks. Investments are allocated carefully across corporate bonds, equities and government securities. Fund managers align investments according to the market conditions through regular monitoring and adjustments.

Flexible Withdrawal

As you reach the age of 60, you get to withdraw 60% of the pension corpus as a lump sum, tax-free. The remaining amount is later utilized to procure an annuity. NPS is a stable source of income that ensures peace of mind during your retirement days.

So, NPS vs PPF – Which One Better Suits Your Retirement Goals?

It is visible that NPS serves as a better choice when it comes to opting for a great retirement savings scheme. However, it may not be the top choice when you have goals to invest in your children's marriage, education, etc.

For the latter, you will find that PPF serves as a better investment scheme for retirement goals.

In conclusion, NPS is usually a better option for retirement planning because of its market-linked returns, flexibility, and tax benefits. At the same time, PPF offers a safe and stable investment option with guaranteed returns and tax advantages, so should make a better choice if you prioritize risk-free returns.

Do not avoid considering your risk tolerance and financial goals when making a final decision.

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