Retirement is dear to everyone. Making a retirement portfolio after a specific age is beneficial to make your future financially safe. To aid salaried employees in financially securing their future, the Indian Government offers two schemes, i.e., the National Pension Scheme and the Public Provident Fund. The NPS vs. PPF is a good long-term savings instrument with multiple income tax privileges. The guide will differentiate between NPS vs. PPF.
What is the National Pension Scheme?
The National Pension Scheme is a voluntary contribution retirement scheme linked to the market. If you invest in a National Pension Scheme, you can frame a retirement corpus and take advantage of the pension after retirement. Anyone between 18 to 60 years of age can invest in the scheme. As it is a retirement scheme, you can not redeem your money before turning sixty years. The National Pension Scheme has a long-term lock-in period, which ensures you use your money only after retirement.
You may think that the National Pension Scheme interest rates are fixed, but the scheme is a product linked to the market. According to the National Pension Scheme withdrawal rules, you can partially withdraw your invested money for reasons such as education, wedding, medical emergencies, etc.
What is the Public Provident Fund?
The Government of India launched the Public Provident Fund in 1965. The vital aim of launching the Public Provident Fund is that people working in the unorganised sector or not covered under EPF can invest in Public Provident to build a retirement corpus. The Public Provident Fund is available in post offices throughout India, so anyone can take advantage of the scheme. The scheme has a fifteen year lock-in period and an assured interest on the money invested. The tax benefits of the Public Provident Fund make it a desirable investment product. If you invest in Public Provident Funds, you can save approximately 1.5 lakhs Indian rupees every fiscal year and claim deductions under the 80C section. Since the Public Provident Fund gives assured returns, risk-averse people opt to invest in the scheme.
Similarities Between National Pension Scheme and Public Provident Fund
The NPS vs. PPF similarities are as follows:
- The NPS and the PPF are retirement-saving schemes.
- It will help you if you open an account before investing in the schemes.
- The NPS and the PPF have specific tax privileges.
- The NPF and the PPF have a long-term lock-in period.
- You do not require to pay tax on returns.
- You do not require to pay tax on the ultimate corpus.
National Pension Scheme vs. Public Provident Fund
The National Pension Scheme is an investment product dependent on the market to provide financial assistance to retired persons. Hence, returns on the National Pension Scheme returns are based on the market and the PFM’s performance. The Government of India launched the NPS. On the other hand, the Public Provident Fund is a government-supported tool that is not limited to pensions and has fixed returns. To know the necessary details of the investment products, it is important to differentiate between NPS vs. PPF.
Differences Between National Pension Scheme and Public Provident Fund
The differences between NPF vs. PPF are as follows:
- Any Indian can open a Public Provident Fund account. You can open a PPF account in your child’s name and avail of the tax privileges. On the other hand, you can open a National Pension Scheme account after 18 years and less than 60 years.
- Non-resident Indians are not eligible for the Public Provident Fund Scheme, whereas, under the National Pension Scheme, non-resident Indians are eligible for the scheme.
- The PPF account’s account maturity period is 15 years. You can extend the term after 15 years, with or without contributing further. The maturity period of a National Pension Scheme account isn’t fixed. You can contribute to the National Pension Scheme account until you are sixty years old, with the choice to extend your investment for up to seventy years.
- The interest rate of the PPF is approximately seven to eight per cent. On the other hand, the interest rate of the National Pension Scheme is approximately 12% to 14%.
- In the case of the Public Provident Fund, you do not have to purchase an annuity. In the case of the National Pension Scheme, you must purchase an annuity valued at approximately forty per cent of the corpus at maturity.
- In the case of the Public Provident Fund, the Government decides the return rates. On the other hand, the interest rates of the National Pension Scheme are linked to the market. Hence, the possible returns are higher,
- The minimum contribution required for Public Provident Fund is Rs. 500 yearly, with the maximum amount at Rs. 1,50,000. You can make twelve contributions every year. On the other hand, the minimum contribution required for the National Pension Scheme is Rs. 6000. There is no restriction on your contribution until it does not go beyond ten percent of your salary or ten percent of your overall aggregate income if you are unemployed.
National Pension Scheme vs. Public Provident Fund
The NPS vs. PPF comparison are as follows:
- The National Pension Scheme is risky and linked to the market, but the Pension Fund Regulatory Development Authority strictly supervises it. On the other hand, the Public Provident Fund is a government-supported scheme with almost risk-free returns.
- You can withdraw the National Pension Scheme balance on maturity, which is tax-free. You have to buy an annuity after paying taxes. On the other hand, the Public Provident Fund comes under the exempt category(EEE).
- The National Pension Scheme has higher liquidity because it gives several partial withdrawal opportunities. On the other hand, the Public Provident Fund enables partial withdrawal after the lock-in period ends.
The NPS vs. PPF is a good investment option. If you want to invest in something reliable, you can consider investing in the National Pension Scheme and Public Provident Fund. Both are good savings options for retirement. Investing in a market-linked National Pension Scheme can create a valuable retirement corpus in the long run. The tax privileges blended with the flexibility of how and where you invest your money to make a perfect retirement product.
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