NPS Vs PPF: Which Is Better for Investment?

When creating a retirement savings strategy, it's critical to consider how much income you'll require in retirement to live comfortably. Expenses such as whether or not a mortgage or rent payment will be made, and if so, how much will be paid, should be examined. To maintain their present quality of life, retirees will typically require 80% of their pre-retirement income.

Whenever it relates to the post-retirement future, both the National Pension System and the Public Provident Fund (PPF) offer distinct advantages. These are both long-term investing strategies. There are substantial distinctions between these two pension programmes, despite their basic similarities. Understanding these concepts can assist you in making a final selection and selecting which of the two options appears to be the best fit for your scenario. Here are some items to consider when comparing NPS with PPF. To understand more about the best age for retirement planning, read on.

Which is a better investment option?

This is a difficult question to answer. When we think about saving for a post-retirement fund, the first thing that springs to mind is the Public Provident Fund (PPF). PPF offers guaranteed returns over time and for people of all ages, making it an excellent long-term investment option. However, the National Pension Scheme, or NPS, has recently gained a lot of attention as a way to save for retirement. The government gave an extra tax deduction of Rs. 50,000 in NPS investments in the Budget 2015-16, which enhanced the use of NPS.

Understanding PPF

PPF is a long-standing government-funded investment plan that has proven successful with long-term participants. To achieve the optimum outcomes, one must commit to the strategy for a period of 15 years!

Previously, there was no option for premature PPF account closure; however, this function has since been provided, with the restriction that the account holder maintain the PPF account operational for at least 5 years before shutting it.

Premature closure will only be permitted under particular instances, such as - Investing in one's further education or paying for medical bills (in case of life-threatening diseases and supported by documents from a medical practitioner)

Following are some more things to consider when opening a PPF account:

1. The current PPF interest rate is roughly 7.1 per cent per year. The interest is compounded every year.
2. Every year on March 31st, interest is credited to the account.
3. Contributions must be done between the 1st and 5th of every morning to earn the best interest, as interest is based on the lowest amount kept (i.e. the amount held on the 5th)
4. You can even take out a loan on your PPF account if you've had it for at least three years. You may be qualified for another loan if you return the loan in full before the sixth year.

PPF can be invested in by any Indian citizen. Except if the second account is in the name of a minor, a citizen can only have one PPF account. PPF accounts are not available to NRIs or HUFs.

Understanding NPS

Let's look at the NPS (National Pension Scheme) now that we've covered the foundations of the PPF. The National Pension Scheme (NPS) is a government-sponsored pension plan offered to employees in the public, private, and unorganised sectors (except for the armed forces). Account holders can contribute regularly in a pension account during their job duration under this system. When the account holders retire, they can take a portion of the amount as a lump payment and the balance as a pension. 

The NPS is available to any Indian citizen who is between the ages of 18 and 60 at the time of application submission. The account holder must adhere to Know Your Customer (KYC) guidelines and must not be an unsolved insolvent or of unsound mind.

What To Choose? - NPS or PPF for Investment

Both the National Pension System and the Public Provident Fund have their place and advantages in any retirement portfolio. PPF is all about providing a safety net for your investments while also providing strong returns. NPS, on the other hand, has a dual benefit in that it provides both capital protection and investment appreciation. It's no surprise that the National Pension System is generating more interest, particularly in light of the system's suggested improvements, which the government intends to enact in the near future.

Also Read: Why Do We Need Pension Plans?

Disclaimer: This article is issued in the general public interest and is meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.