In India, there are various financial products that help people save for their future, especially for when they retire from their job or business. Two such post-retirement funds are the National Pension Scheme (NPS) and the Public Provident Fund (PPF). Let us understand the two products in detail.

What is the National Pension Scheme?

The National Pension Scheme is a government-sponsored voluntary pension system. It is like a mutual fund but is targeted to only make retirement related savings. The pension savings, here, are linked to the market. Thus, the returns of the scheme are not fixed as they rely on the performance of the pension manager and market.

What is the Public Provident Fund?

The Public Provident Fund is a government-funded long-term savings vehicle. It is regarded as an evergreen investment scheme as it enjoys the Exempt-Exempt-Exempt (EEE) treatment. It is widely popular amongst long-horizon investors who are looking to save tax and build a corpus for their retirement. It is regarded as one of the safest savings plans in India since it is fully guaranteed by the Central Government.

NPS vs PPF

CRITERION NPS PPF
Return 10-14% (subject to changes in the market) 7.9% in Q1 FY 2020-2021 (revised by the Finance Ministry every quarter)
Minimum Investment Rs. 6,000 p.a. Rs. 500 p.a.
Maximum Investment No limit Rs. 1,50,000 p.a.
Tenure Unlimited (subject to attainment of 60 years of age, after which extension for investment up to 70 years of age is available) 15 years
Tax Deduction on Contribution Up to Rs. 1,50,000 u/s 80ccd(1) as long as such deduction does not exceed 10% of basic salary or 20% of gross income and an additional tax deduction of Rs. 50000 available u/s 80ccd(2) Up to Rs. 1,50,000 u/s 80c
Taxability of Matured Sum 60% of the matured sum can be withdrawn tax-free. The balance 40% must be mandatorily used to buy an annuity Tax-Exempt
Withdrawal 25% of the contributions can be withdrawn after staying invested for 3 years for specified reasons Partial withdrawals may be made 7th year onwards (some banks allow partial withdrawals from the 5th year)
In Conclusion Therefore, it can be concluded that each investment option has its own pros and cons. One should consider their saving goals and risk appetite before choosing to invest in a fund.

Learn more about your Pension Plans here.

DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.



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