Home / Money / Personal Finance /  PPF vs NPS: Which investment plan is better for creating retirement corpus?
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PPF vs NPS: The National Pension System or NPS is PFRDA (Pension Fund Regulatory and Development Authority) administered voluntary pension scheme created through a parliamentary act. However, while investing in NPS it has been found that people are confused between the Public Provident Fund (PPF) and NPS as both are meant for long-term or retirement fund accumulation.

Speaking on PPF vs NPS; Manikaran Singhal, Founder at said, "Both PPF and NPS are voluntary investment tools. However, when it comes to choosing either PPF or NPS, people get confused as to which would give them more return and income tax exemption. Generally, people invest in NPS when their PPF limit of 1.5 lakh under Section 80C is exhausted."

The SEBI registered tax and investment expert said that NPS has eight fund managers where NPS account holder can choose the equity exposure up to 60 per cent of the investment. And at the time of retirement, one can withdraw 60 per cent of the maturity amount, which is tax-free. Rest 40 per cent remains in the NPS account for pension funding and the investor has to buy annuity from it.

Manikaran also added that NPS investment has two options: active mode and auto mode. In the active mode, one can evaluate one's return annually and can switch from equity to debt and debt to equity options. While in auto mode, there would be 8 fund managers handling one's investment and making a switch from debt to equity and vise versa options on their wit and grit. He said that in NPS, one can have an income tax exemption on NPS investment up to 50,000 under Section 80CCD.

Comparing PPF with NPS Kartik Jhaveri, Director — Investments at Transcend Capital said, "A recruiter, especially the government of India or the state government, gives its employees option between the PPF and the NPS. Some of the private companies are also offering such an option to their employees. However, NPS account can be opened by those also who are self employed or have earnings other than monthly salary. Since NPS has an annuity option, it's always better to go for the NPS instead of the PPF. The benefit of choosing the NPS is maximisation of the investment while in PPF, it is completely dependent on the interest rate."

Jhaveri went on to add that due to the equity exposure, if someone chooses debt and equity exposure in 50:50 ratio, in the long-run debt option would give around 8 per cent return while the equity exposure would give at least 12 per cent return. Means, net NPS returns would be 10 (6 + 4 = 10) per cent, which is 2.9 per cent higher than the PPF interest rate of 7.10 per cent.

PPF vs NPS: Which is better

So, if an investor chooses NPS ahead of PPF keeping 50:50 exposure in equity and equity, the investor may expect to get around 2.9 per cent more return on one money (10 - 7.10 = 2.90).

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