What is the best way to build a retirement corpus? Details here

PPF versus NPS: Public Provident Fund or PPF is one of the limited risk free investment tools that can generate higher average inflation rate as the interest rate of PPF today is 7.10% per annum . While the PPF is entirely a debt instrument, the National Pension Scheme or the NPS scheme is a mix of equity and debt where an investor can choose up to 75% equity exposure on their investment. According to tax and investment experts, if an investor is not in the mood to take risks, opening a PPF account is a better option, while an investor willing to take risks, a NPS would be a suitable option for this investor.

Speaking on PPF vs NPS investing; Jitendra Solanki, SEBI registered tax and investment expert, said: “If an investor has no appetite for risk, then PPF is suitable for that investor as it is 100% risk free and one can remain assured of return. of his PPF while the NPS scheme is a mixture of both equity and debt investments, so an investor who is willing to take risks should opt for the NPS scheme as it would yield more returns compared to the PPF in the long run. term.

PPF vs. NPS: tax advantages

Jitendra Solanki said that the PPF and NPS allow income tax exemption for investments up to 1.50 lakh under Section 80C of the Income Tax Act. However, in the NPS, an additional income tax refund is available under Section 80CCD. Under Article 80CCD, a taxpayer may claim a tax benefit up to 50,000 invested in his NPS account in a single financial year. Thus, if an investor is willing to take risks, he should invest in the NPS before the PPF, as this would allow him to claim an additional tax benefit on a maximum of 50,000 investments other than 1.50 lakh under Section 80C.

PPF vs. NPS: interest rate

Speaking on expected performance in PPF and NPS; Kartik Jhaveri, Director – Wealth at Transcend Capital, said: “In PPF, the interest rate is announced on a quarterly basis and compounded on an annual basis. Thus, the PPF interest rate is subject to change on a quarterly whereas in the NPS account the investor has the flexibility to choose their equity exposure One can choose up to 75% equity exposure in the NPS account so their investment in PPF is a debt investment 100%, while their NPS investment is a mix of debt and equity If an investor chooses 60% equity exposure and 40% debt exposure, in which case the equity investment should return at least 12% per year in the long term, while the debt exposure can yield 8% in the long term The debt ratio is 10.40% (7.20 in equity and 3.20 in exposure to the debt) Thus, compared to the PPF account, the retirement corpus will increase by 3.30% faster in the long-term NPS.”

Jhaveri said that if an investor maintains debt-equity exposure at a ratio of 50:50, then the NPS return would be 10% in the long term, which is still 2.9% above the interest rate. current PPF of 7.10%.

PPF vs. NPS: which is better

Thus, PPF is suitable for investors who have no appetite for risk. However, if an investor is willing to take risks, NPS is better as it offers a higher return of around 3% to 3.30%. Apart from this, NPS account holder can claim tax benefit up to Investment of 2 lakh in a single financial year while this benefit in PPF is capped at 1.50 lakh on a single fiscal year.

However, tax and investment experts have argued that it is the investor’s risk appetite that would decide which investment tool is best and not the long-term return, as both have the ability to beat the average inflation rate, which falls around 5 to 6%. long-term.

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About Meredith Campagna

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