PPF vs NPS: Public Provident Fund (PPF) and National Pension System (NPS) are long-term investment options. While NPS scheme is fully retirement-oriented scheme PPF can be a retirement option if the PPF account holder holds it for long-term by extending it after 15 years maturity period. However, PPF is 100 per cent debt instrument while NPS is mix of both debt and equity. In NPS, the investor has an option to choose equity exposure up to 75 per cent. According to experts, if an investor, who has slightly higher risk appetite, chooses 50:50 debt and equity exposure in the NPS account, then it would get around 10 per cent return in long-term, which is around 2.9 per cent higher than the current PPF interest rate of 7.1 per cent.
Speaking on PPF vs NPS Kartik Jhaveri, Director — Wealth Management at Transcend Consultants said, “PPF account is 100 per cent debt fund backed by Government of India while NPS is a retirement-oriented fund where the investor has to invest at least 25 per cent in debt and buy annuity of at least 40 per cent of the maturity amount. If an investor has some risk appetite, then I would advise him or her to choose 50 per cent in active mode and 50 per cent in auto mode means 50 per cent in equity and 50 per cent in equity. In the long-term say after 30 years, the annual NPS interest rate that will accrue in one’s NPS account will be around 10 per cent as equity will deliver around 12 per cent and debt will deliver 8 per cent. 50:50 debt equity exposure will split in 6 + 4 means 10 per cent net return.”
On his take on PPF vs NPS Amit Gupta, MD at SAG Infotech said, “Both PPF and NPS gives income tax exemption to the investor on its investment up to ₹1.5 lakh in single financial year. But, in NPS there is no maturity period while in PPF, there is 15 year maturity period. So, if a person wants to go long in PPF, he or she will have to submit PPF extension form at bank or post office (whichever applicable) in the last year of the maturity period of the PPF account. One can extend PPF account in blocks of 5 years for infinite number of times. Hence, if a person opens PPF account at 30 years, he or she can continue investing in PPF for near 30 years too.” Gupta advised to choose PPF extension with investment as it will help investor get benefit of compounding interest.
Now, if an investor invests ₹3,000 per month in PPF for 30 years assuming current PPF interest rate of 7.1 percent as net return, then as per the PPF calculator, one would get ₹37,08,219 PPF maturity amount.
Similarly, if an investor invests ₹3000 in NPS account keeping 50:50 exposure in equity and debt devoting 40 per cent of the net maturity amount for purchasing annuity, NPS calculator says that the maturity amount that the investor would get after 30 years will be ₹41,02,786 and he or she would get ₹13,676 monthly pension too.
So, if an investor has some risk appetite, then NPS will yield higher in comparison to PPF as it will give higher maturity amount along with monthly pension.