Savings are an important financial goal for retirement. People usually use National Pension System (NPS) and Public Provident Fund (PPF) for this.
Savings are an important financial goal for retirement. The best way to save for this is to make a small amount of regular investment over a long period of time. People usually use National Pension System (NPS) and Public Provident Fund (PPF) for this. Here we are talking about these two products in detail so that you can compare which product is suitable for you.
Who can invest?
NPS:NPS was started in January 2009. The scheme was then available only to government employees. However, it was opened to all citizens in May 2009. There are three broad categories of investment in NPS. One is compulsory contracts for government employees. Secondly, there is a contribution for the employees of the company. Third, is voluntary for all citizens. NRIs can invest in NPS.
PPF: Every citizen living in the country can invest in PPF. NRIs are not allowed to invest in PP
What is the age eligibility for investment?
NPS: The age for investment should be at least 18 years and above 65 years.
PPF: There is no restriction. Minors can also invest in PPF with the help of parents.
What is the nature of return?
NPS: Investors can choose different types of investment options. These include equity, government securities, and corporate bonds. Since these are market linked investments. Hence the return on NPS investment is not fixed.
PPF: It gives you interest at a fixed rate. Its interest rates are fixed every three months. These are decided by the government.
What is the rate of return?
NPS: Its investors have the option to invest in equity, corporate bonds and government securities. With this they can get more returns. Returns depend entirely on market performance.
PPF: PPF is one of the highest interest paying instruments among the investment options of the government. The PPF interest rates change every quarter. The interest rate on PPF is currently 7.1 percent.
What is the period of investment?
PPF: The maturity of a PPF account is 15 years. After this, in the block of 5 years, you can increase it as many times as you want.
NPS: Since NPS is a focused retirement product. So, you have to maintain investment for 60 years. You can continue your NPS account till the age of 70 years.
How much investment do I have to make?
NPS:All government employees in NPS whose jobs have started on or after January 1, 2004, contribute 10% of dearness allowance along with basic salary. These include state and central employees except armed forces. State governments also contribute at par with the employees’ contractions. At the same time, the central government contributes 14 percent. However, in the corporate sector, usually 10% of the basic salary employees contract. The equivalent contract is done by the company. As far as the voluntary contribution is concerned in the NPS, it should not be more than 10% of the gross total annual income.
PPF:Investment in PPF can be started from a minimum of Rs 500. This account has a maximum limit of Rs 1.5 lakh during any financial year. The account becomes inactive by not depositing a minimum amount of Rs 500.
When does maturity occur?
NPS: In this, at the age of retirement, you have to spend at least 40% of the funds raised in the account to buy an annuity plan. This gives regular income. You can withdraw lump sum up to 60 percent.
How much is security?
PPF: After 15 years, you get the entire amount deposited in the account (investment and interest made on it) in one lump sum.
How much is safety?
NPF:NPS runs NPS trust. Pension fund regulator PFRDA has created this trust. PFRDA is controlled by the government. Public and private fund management companies manage the investments that NPS subscribers make. PFRDA appoints them. In such a situation, as far as safety is concerned, there is market based risk with it.
PPF: The government has a hand on PPF investment. In such a situation, there is very little risk with it.
Tax savings:
The benefit of tax deduction up to Rs 1.5 lakh annually in both PPF and NPS.
PPF: Return on PPF is completely tax free. However, you cannot invest more than Rs 1.5 lakh during a financial year.
NPS:Apart from investing more than Rs 1.5 lakh under section 80 CCD, deduction of additional 50,000 is available under section 80 CCD (1B). In this way, you get a deduction of 2 lakh rupees annually.
Where to open account?
NPS: If you are investing in NPS as part of salary, then you can open an account through your company. If you are new to NPS, then you can open an account through Voluntary Investment through Point of Presence (POP) or ENPS. Here POP refers to banks, brokerage houses and other financial institutions. You can get the list of nearest POP by clicking on this link https://www.npscra.nsdl.co.in/pop-sp.php .
PPF:For this account can be opened in post office branches and banks. Many banks offer online facility to both open and invest PPF account.
Where should you invest?
Both the producers have their strengths and weaknesses. They should be seen before investing. Depending on your needs, you can choose to invest in them.
