PPF vs NPS: If you are looking to make money safely, then here are 2 top options, but which one is for you?

PPF vs NPS: The Government of India has made available a number of schemes where people can save money.

PPF vs NPS: NPS investment has two options: active mode and auto mode. In active mode, investors can evaluate their returns annually and switch from equity to debt and debt to equity options. Photo: PTI

PPF vs NPS: The Government of India has made available a number of schemes where people can save money. On top of that, the government provides an interest rate that ensures the investors get good returns after a certain period has elapsed. These investors can then rest easy as the years unfold, because their future is going to consist of a lifestyle that is very comfortable, if not glitzy. In short, they will have money to spare. The only thing required here are 2 things: one is discipline - you have to keep investing month after month, year after year - and second is patience - there is no way that anyone will get rich quick from them. In between, during emergencies, there will always be some money available to ensure you do not rack up impossible amounts of debt.

So, today, we look at PPF and NPS. Public Provident Fund (PPF) and NPS are meant for retirement fund accumulation. PPF is an instrument where investors can save money and in return they get a certain amount of interest rate plus, they get a chance to save tax. The National Pension System or NPS is a voluntary pension contribution system administered and regulated by the Pension Fund Regulatory and Development Authority (PFRDA). The investment vehicle has been created through a parliamentary act. So, which one is better, PPF or NPS and for whom? Manikaran Singhal, a SEBI registered tax and investment expert explains it all for you.

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Speaking on PPF vs NPS returns, Singhal said, "Both PPF and NPS are voluntary contribution options made available by the recruiter if the income taxpayer is a salaried individual. However, when it comes to choosing either of PPF or NPS, people get confused as to which would give them more income tax exemption. Generally, people invest in NPS when their PPF limit of Rs 1.5 lakh under Section 80C is over." Manikaran said that NPS has eight fund managers where investors can choose the annuity option up to 60 per cent of their investment. And at the time of retirement, they can withdraw 60 per cent of the maturity amount, which is tax-free. Rest 40 per cent would remain in the NPS account for pension funding of the investor and it would be taxable.

Manikaran also added that NPS investment has two options: active mode and auto mode. In active mode, investors can evaluate their returns annually and switch from equity to debt and debt to equity options. While in auto mode, there would be 8 fund managers handling the NPS investments and making a switch from debt to equity and vise versa options on their wit and grit. Singhal said that in NPS, investors can have an income tax exemption investment up to Rs 50,000 under Section 80CCD.

Comparing PPF with NPS, Kartik Jhaveri, Manager — Wealth Management at Transcend Consultants said, "A recruiter, especially the Government of India or the state government, gives its employees option between the PPF and the NPS. Some of the private companies are also offering such an option to their employees. Since NPS has an annuity option, it's always better to go for the NPS instead of the PPF. The benefit of choosing the NPS is maximisation of the investment while in PPF, it is completely dependent on the interest rate."

He said if someone chooses the 50:50 equity and debt option, the debt option would give around 8 per cent returns like PPF while the equity exposure would give at least 12 per cent returns over the long-term. Means, if a person invests Rs 100 in NPS and Rs 100 in PPF, he or she would get 7.1 per cent returns in PPF while in NPS his or her returns would be 10 per cent returns, which is 2.9 per cent higher than PPF.

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