PPF vs NPS: Public Provident Fund (PPF) and National Pension System (NPS) are long-term investment plans that come with specific benefits. While PPF was introduced by the National Savings Institute in 1968, NPS was originally launched for the government employees in 2004 and extended to the general public in 2009.
Market experts believe that investing wisely in these schemes can definitely make individuals richer with time.
“Capitalising in any one scheme entirely depends on the need and target of the investor. Though both schemes yield a reasonable interest, the strings of pros and cons are attached with them,” said Mahesh Shukla, Founder PayMe India.
On the one hand, PPF is a solely debt-oriented scheme backed by the government and handover a floating rate of interest of 7.1 percent compounded on an annual basis, the NPS is a market-linked scheme consisting of both debt and equity wherein the returns are based on the market with interest up to 10 percent annually.
The tenure of the PPF account is 15 years and after the account maturity one can either exit or opt for extension. On the other hand, in NPS, the period of investment is till superannuation or 60 years of age whichever is earlier.
However, according to Shukla, PPF wins over NPS when it comes to tenure and NPS holds the better position with earnings aspect.
Periodic investments in PPF for the long term can do the trick with the power of compounding. The longer the money stays invested, the quicker it grows, experts say.
As per calculations, if someone starts investing Rs 12,500 per month (the maximum monthly investment that can be done in PPF) and continues the PPF account till 15 years, he may earn over Rs 43 lakh at the time of maturity (in accordance with the current 7.1 percent rate of interest).
Now, the same account can be extended within one year of maturity for a further five years and so on to earn more benefits. After investing Rs 1.5 lakh per year for 20 years ( first extension) at 7.1 percent, the PPF account balance will be about Rs 73 lakh.
Now, in order to get Rs 1 crore, the investor needs to extend the account for a further five years (second extension). After investing Rs 1.5 lakh per year for 25 years at 7.1 percent, the PPF account balance will be Rs 1,16,60,769 (which is more than 1 crore).
On the other hand, if an investor invests Rs 8,000 per month for 30 years in NPS and buys a 40 percent annuity, the returns will be Rs 1,09,40,762, according to the NPS Trust calculator available online.