If you are young now and do a job or your business, then you should start work on your retirement planning as soon as possible. When you can take a risk, you should use that risk capacity to create a fund for a long time. After this, that fund can then be used to give itself a regular pension in his lifetime. Retirement planning is necessary, since you have to maintain yourself for a long time and medical cost is touching the sky. A lot of money is spent in retirement and you need to be ready for it. Your retirement investment plan should focus on returns, risk, tax efficiency and liquidity. Two popular products to invest for retirement are NPS and PPF.
Comparison in terms of residence
Comparison of NPS and PPF is important in terms of residence. Both are open to Indian citizens only. By the way, in the case of NPS, NRI can also participate in NPS after completing the expected KYC. Whereas, in the case of PPF, NRIs cannot make a new investment, although they can continue their PPF account opened as an Indian resident even after becoming a non -resident.
What is the difference regarding returns-liquidity
On the return and liquidity parameters, 7.1% interest is currently being offered on PPF. It changes from time to time. NPS is a market powered scheme, and therefore there is no sure returns. In the case of liquidity, PPF has a 15-year lock-in, but after 7 years there is partial withdrawal for specific cases and a loan facility after 3 years. NPS lasts up to 60 years of age and can be extended to the age of 70 years.
However, according to SBI Securities, the NPS allows a lump sum withdrawal of up to 60% and the remaining 40% have to be converted into an annuity fund for regular pension. The exceptions to this rule are if the accumulated fund is less than Rs 5 lakh or if the NPS holder has died. In the first case, 100% of the NPS fund can be extracted. In the second case, the entire amount is given to the heirs.
Talk to tax
The PPF is on the EEE model (discount, discount, discount). That is, contribution is eligible for tax exemption up to Rs 1.50 lakh per year. Also, interest is completely tax free and even the last corpus is completely tax-free. This greatly increases the effective yield.
In relation to NPS, the range of Section 80C increases to Rs 2 lakh, including an additional tax exemption of Rs 50,000 per year under Section 80 CCD (2). When exiting, a maximum of 60% lump sum corpus is completely tax -free. 40% dedicated to annuity income is also tax free at the time of exit. However, any annuity obtained from accumulation in NPS is fully taxable as income in the hands of NPS investor.
In case of investment flexibility and transparency
When it comes to PPF, the investor has limited discretion on how to invest money. There is not much transparency on how PPF funds are invested. However, in the case of NPS, this is a market -powered return. That is, the investor can select between equity funds, government securities funds and fixed income means and other government securities.
Understand in case of return
Due to the NPS market nature, it has given more returns in the long term than PPF. Unlike PPF, which is fully confident by the government, NPS is largely operated and therefore no assurance. When you are choosing investment for retirement, this National Pension Scheme vs. PPF comparison provides a good perspective of relative properties and defects.
Overall, both PPF and NPS have their own merits and can be an integral part of your retirement investment plan. As a general rule, you can always risk your retirement because it is far away. Also, this is the best way to use equity. Therefore, NPS fits in retirement planning. However, for specific goals like education of your children or marriage, PPF is a better option.
(Disclaimer: This is not an investment advice but only one information. Seek advice from your financial advisors before taking any decision related to rupee-money.)
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