NPS vs PPF: Where is it beneficial to invest, know where you will become a millionaire quickly..
In NPS, you have to deposit at least Rs 6000 every year. You can deposit money according to your wish, there is no upper limit. On the other hand, you have to deposit at least Rs 500 every year in a PPF account and you can deposit a maximum of Rs 1.5 lakh annually here.
For Rs 1.5 lakh, you have to invest Rs 12500 every month. At the rate of 7.10 percent annual return, 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 is, a total of 30 years of investment (minimum 15 years lock-in plus 3 times 5 years 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 the maturity of the PPF is completely tax-free. But you get a tax rebate on investment in NPS. But only 60% of the total amount is tax-free. The remaining 40% is invested in an 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 a government guarantee. The risk in NPS depends on the investment option you choose, the equity option is the most risky.
Any Indian citizen between 18 to 70 years old 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.
