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NPS or PPF, which is the best and in which one will you become a millionaire first?

There are four types of investment options in NPS. First asset class E - equity and related investments, second asset class C - corporate bonds and related investments, third asset class G - government bonds and related investments and fourth asset class A - Alternative Investment Funds like CMBS, MBS, REITS, AIFs, Invlts etc.
 
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PPF Calculator: If your target is to accumulate a fund of Rs 1 crore or more at the time of retirement, then both National Pension Scheme (NPS) or Public Provident Fund (PPF) are good options for this. But which one should you choose? What is the minimum amount to invest in NPS and PPF and what are the returns? What is the difference in the tax benefits of NPS and PPF? To compare these two investment schemes, let's take a look at some calculations, average returns and other important aspects of PPF and NPS.

At least Rs 6000 has to be deposited every year in NPS. In this, you can deposit money as per your wish, there is no upper limit. On the other hand, in a PPF account, you have to deposit at least Rs 500 every year and you can deposit a maximum of Rs 1.5 lakh annually. For Rs 1.5 lakh, you have to invest Rs 12,500 every month. At an annual return of 7.10 percent, you will get Rs 15,646,006 in 30 years. You can extend it three times for five years each.

Suppose a person starts investing in PPF at the age of 30 and keeps investing till the age of 60. That means a total of 30 years of investment (minimum 15-year lock-in plus 3 times 5-year extension) or 360 months. If you deposit Rs 12,500 every month or Rs 1.5 lakh annually and the interest rate is 7.1%, then you can get more than Rs 1.5 crore on maturity.

There are four types of investment options in NPS. First asset class E - equity and related investments, second asset class C - corporate bonds and related investments, third asset class G - government bonds and related investments and fourth asset class A - Alternative Investment Funds like CMBS, MBS, REITS, AIFs, Invlts etc. The average return of Scheme A has been 7.55%, the average return of Scheme G has been 7.74%, the average return of Scheme E has been 15.56% and the average return of Scheme C has been 7.56%.

According to the returns given above, if you invest Rs 12,500 every month in NPS, then after 30 years you will get around Rs 4.82 crore in PPF. If you invest in Scheme A, G or C of NPS, then you can get more than Rs 4.84 crore. But if you take a risk and invest in Scheme E of NPS, then you can earn more than Rs 9.9 crore. This figure is based on the average return of the last 7 years.

According to the returns given above, if you invest Rs 12,500 every month in NPS, then after 30 years you will get around Rs 4.82 crore in PPF. If you invest in Scheme A, G or C of NPS, then you can get more than Rs 4.84 crore. But if you take a risk and invest in Scheme E of NPS, then you can earn more than Rs 9.9 crore. This figure is based on the average return of the last 7 years.

The money received on maturity of PPF is completely tax free. But you get tax rebate on investment in NPS. But only 60% of the total amount is tax free. The remaining 40% is invested in annuity and the income received from it is taxable. Although NPS has a higher investment limit, it can help you save more tax than PPF. You can decide where to save for your retirement based on the points mentioned above.

The liquidity of money in both the investment schemes NPS and PPF is low as both have a long period of depositing the money. PPF is a risk free option with government guarantee. The risk in NPS depends on the investment option you choose, equity option is the most risky.

Any Indian citizen between 18 to 70 years can open an NPS account. On the other hand, any Indian citizen above 18 years can open a PPF account. NRIs living abroad can open an NPS account but cannot open a PPF account.

Where your money will be invested in PPF is already decided. But in NPS, you can choose where you want to invest your money. PPF is a low-risk investment and you get continuous returns. On the other hand, the more risk you take in NPS, the more returns you are likely to get.

According to the study, if you want less risk and deposit Rs 12,500 every month, then after 30 years you can get around Rs 4.82 crore in PPF. But, if you are ready to take a little risk, then you can earn more than Rs 9.9 crore. This figure is the average of the returns of the last 7 years.