Post Mortem

NPS or PPF? What to choose for a long-term retirement corpus

By Nagaland Post | Publish Date: 2/22/2021 1:36:40 PM IST

 The debate is on. When buying a car, you contemplate over petrol or diesel. When planning a vacation, you argue over hills or beaches. When it comes to your morning breakfast, should you pick poached egg or omelette? Each has its own unique flavor and wisdom. But when it comes to your retirement investment, the debate stops at PPF v/s NPS. Which one should be your choice? Where are you expected to get more returns? Where will you feel more secure? Let’s find out.

Both NPS and PPF are regular, long-term investments. When the NPS (National Pension Scheme) was launched in 2004, it was meant only for government employees. But in 2009, it was opened to the public. There are three categories in which one can invest in the NPS. The first is the statutory contribution by the government employees. The second includes corporate employees, and the third is the voluntary contribution by the public. NRIs are also allowed to invest in NPS. In case of PPFs, only Indian citizens can invest; NRIs are not allowed to invest in PPF (Public Provident Fund).

The minimum age for joining the NPS is 18 years and the maximum is 65. But in PPF, there is no age factor. Minors can also contribute to PPF. The returns for PPF are determined by the government and can change every three months and it reflects the current borrowing rates of the government. In NPS the investor has the option of choosing from Equity, government security and corporate bonds. Because NPS is market-dependent, they have a higher return prospect which varies. It will depend on which fund the investor has selected and also on the performance of the fund manager. As of the first week of February, the equity funds average return has been around 23 per cent in the last one year. For the last five years, the average has been 15 per cent. In the corporate bond fund, the returns for the last one year have been a little above 11 per cent; the average for the last five years has been 9.5 per cent. In case of government securities, the last one-year average and the past five-years average has been a little above ten per cent. Whereas, the current return from the PPF has been fixed at 7.1 per cent.

The period of investment for PPF is 15 years. But after 15 years, one can continue his/her investment for an infinite time, but in a block of five years. However, in case of NPS, the vesting age is 60 years (at which one retires) and can be extended to 70 years. This was done since NPS was constructed as a pure retirement product.

The maximum limit for PPF investment for a financial year is 1.5 lakhs. In case of NPS, a government employee pays ten per cent of his/her basic salary, plus his/her dearness allowance. And an equal amount is contributed from the government’s end. In the corporate sector, the contribution of the employee and employer rests at ten per cent each. There is no limit for the frequency of investment. But for a private citizen, one should not invest more than 20 per cent of his annual income in NPS.

In PPF, on maturity, you get back the entire amount as a lump sum. But NPS withdrawal rules are different. Since the purpose of NPS is giving you a pension, whatever you accumulate at the time of retirement, minimum 40 per cent should be utilise to buy an annuity plan. Rest 60 per cent can be withdrawn at the time of retirement.

Both NPS and PPF have their own strengths and weaknesses. But since NPS is market-linked, its returns in the long run are superior. But if you want absolute security, PPF is your choice.

Dipankar Jakharia, 



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