NPS (National Pension Scheme) is a market linked scheme. The returns of this scheme depend on the performance of the fund manager. You can choose the investment option in NPS according to your risk appetite
NPS and PPF are good options for retirement planning. Both the schemes have the support of the government. Tax benefit is also available in both. The question is, which of the two is better for you? To answer this question, we have to understand the difference between the two schemes. After knowing this, you will be able to easily decide which of the two schemes will be right for you.
NPS (National Pension Scheme) is a market linked scheme. The returns of this scheme depend on the performance of the fund manager. Its return cannot be told in advance. In contrast, PPF (Public Provident Fund) investment has a fixed return option. This means that before investing in this scheme, you know what your returns will be.
In NPS, you can choose the investment option according to your risk appetite. There are a few options for the investor for this. In the first option, a subscriber up to the age of 50 years can opt for 75 per cent equity investment. In the second option, 100% of the money can be invested in corporate bonds. In the third option, there is an option to invest money in government securities. Your returns will depend on which option you have opted for.
There is no option for the subscriber in PPF. Its returns are generally between 7-8 per cent per annum. The government reviews the interest rate of PPF every quarter. Its interest rate may increase or decrease according to the financial market conditions. At present, the interest rate of PPF is 7.1% per annum.
NPS matures when you attain 60 years of age. On maturity, you get some lump sum amount. You have to invest the rest for the annuity. From this you get pension every month. During the scheme, the subscriber is allowed to withdraw 25% of the money before maturity. This facility will be available after three years of account opening. The subscriber can withdraw the maximum amount thrice during the tenure of the scheme. There are certain conditions for this.
PPF matures in 15 years. From the seventh year onwards, it also has the facility of partial withdrawal. If you want, you can also take a loan against your money deposited in the PPF account. Its interest rate is one percent more than the interest rate you get on your money deposited in PPF.
Investments in both NPS and PPF are tax exempt. This exemption is available under section 80C of the Income Tax Act. You can avail tax deduction by investing up to a maximum of Rs 1.5 lakh in a financial year in either or both. An additional deduction of Rs 50,000 is available in NPS under section 80CCD (1B).
On attaining the age of 60, you can withdraw 60 per cent of the money from NPS, which will be tax-free. You will have to invest the remaining 40 per cent in the annuity. You will have to pay tax on the pension you get from this. In terms of taxation, PPF has EEE status. This means that there is no tax at any stage of investment in this scheme. No tax will have to be paid on the maturity amount as well.
If you can take the risk then you can consider investing in NPS. This scheme is good for investors looking for high returns with little risk. On the other hand, the risk in PPF is negligible. The second advantage is that you know how much money you will get after 15 years.
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