PPF Vs NPS: To continue life after retirement without any tension, it is important that you keep getting regular income. PPF and NPS are two better options for retirement corpus.
PPF Vs NPS: To continue life after retirement without any tension, it is important that you keep getting regular income. For this, along with starting the job, retirement planning should be started. Public Provident Fund (PPF) and National Pension System (NPS), both schemes are popular schemes for retirement among salaried people. Anyone can invest in PPF. It is a voluntary scheme. At the same time, NPS is also not necessary for employees in private companies, but they can open these accounts if they want. Both the schemes have their own characteristics.
Public provident fund
You can deposit a maximum of Rs 1,50,000 in PPF account every year. The amount invested in PPF gets tax deduction under section 80C. Apart from this, the amount and interest received on maturity is also tax free. The maturity period of PPF is 15 years. However, pre-mature withdrawal can be done after 7 years. PPF account can be extended after 15 years in blocks of 5-5 years. PPF is currently getting 7.1 percent annual interest. Compounding is done annually. This account can be opened in the post office or designated bank.
PPF Return Calculation
PPF is a 15 year savings scheme. The interest rate on this is fixed by the government every quarter. At present the interest rate is 7.1 percent. If you deposit 1.5 lakh in PPF every year, then after 15 years it will become Rs 40.68 lakh at an interest rate of 7.1 percent. This will be a guaranteed return. This maturity amount is tax free. After this, PPF can be continued even further in blocks of five years. If we look at inflation and pre-tax returns of PPF, it is still a great investment instrument.
National Pension System
NPS has been specially designed keeping in mind the financial requirements of post retirement. Anyone between the age of 18 years to 45 years can invest in it. After opening the account, money has to be deposited in it for 60 years. On maturity, 60% of the fund is available. This amount is tax-free. The remaining 40 percent of the amount goes to the annuity. The insurance company gives pension for life only from the amount of annuity. However, this pension comes under the tax net. Unlike PPF, there is no fixed return in this. But it depends on the returns earned by the fund from investments in equity and debt.
Actually, annuity is a contract between you and the insurance company. Under this contract, it is necessary to buy an annuity of at least 40 percent of the amount in the National Pension System (NPS). The higher this amount, the higher will be the pension amount. The amount invested under annuity is received in the form of pension after retirement and the balance amount of NPS can be withdrawn in a lump sum.
NPS Return Calculation
If the average age of the investor is 21 years. In this, he makes a monthly contribution of Rs 12,500. If you join NPS from the age of 21, then you will have to invest in it till the age of 60, that is, for 39 years.
- Monthly investment in NPS: Rs 12,500 (Rs 1.50 lakh per annum)
- Total contribution in 39 years: Rs 58.50 lakh
- Estimated return on investment: 10%
- Total amount at maturity: Rs 7.20 crore
- Annuity purchase: 40%
- Estimated annuity rate: 6% of
- 60 Pension on age: Rs 1,44,022 per month
(Note: This calculation is an approximate figure. Actual figures may vary.)
In NPS, if you take 40 per cent annuity (the minimum that is required to be kept) and the annuity rate is 6 per cent per annum, then after retirement you will get Rs 4.32 crore in lump sum and 2.88 crore will go into annuity. Now from this annuity amount, you will get a pension of Rs 1.44 lakh every month. The higher the annuity amount, the higher the pension you will get.
Do not invest from tax saving point of view
Investing in NPS and PPF should not be done keeping in mind the tax saving only. One can choose PPF for long term financial needs as it is tax saving. At the same time, NPS works like a wealth creation instrument. In this, higher returns are expected than investments in equity and debt.
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