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Investors can build a retirement corpus while enjoying tax relief via the Public Provident Fund (PPF) and the National Pension System (NPS).
PPF offers guaranteed, tax-free returns and a deduction under Section 80C.
NPS delivers higher growth potential with additional deductions under Section 80CCD and tax-efficient withdrawal rules.
With inflation and taxation gradually affecting savings, finding reliable, tax-efficient investment options is essential. Two government-backed schemes: the Public Provident Fund (PPF) and the National Pension System (NPS), stand out as they combine safety, steady returns, and long-term wealth creation.
Both investment plans are designed to help people achieve financial freedom while enjoying significant tax advantages under the Income Tax Act. However, their true strength lies in how effectively they complement each other. One offers guaranteed, risk-free growth, and the other promises higher returns through market participation.
PPF remains a reliable choice for investors who want a risk-free retirement plan. With investments up to Rs. 1.5 lakh every year under Section 80C, it is one of the best tax-free schemes. The interest rate currently applicable to PPF accounts is about 7.1% per annum. For NRIs, existing accounts are valid until maturity; however, new accounts cannot be opened.
NPS offers a mix of equity and debt exposure, offering potential for higher returns in the long run. Investors can claim self-contributions of up to Rs. 1.5 lakh under Section 80CCD(1) (within 80C), and an extra Rs. 50,000 under Section 80CCD(1B) beyond the 80C ceiling. At retirement, 60% of the corpus can be withdrawn tax-free.
If the goal is capital-guaranteed, fully tax-efficient income from a low-risk vehicle, PPF stands out as a safe and simple option. If the goal is to build a bigger fund and take advantage of market-linked growth while still receiving tax benefits, then NPS is the best choice. PPF’s lock-in period is a minimum of 15 years, whereas NPS requires individuals to maintain the account until 60 years of age to receive the full benefit. Liquidity is more restricted in the latter plan.
Balancing safety with growth is crucial for accumulating wealth in the long term. PPF offers secure returns, along with total tax exemption, ensuring investors have peace of mind. Conversely, NPS offers higher returns through disciplined, market-linked investing.
By investing wisely in both plans, people can experience a combination of stability and growth. This hybrid approach offers a gradual, tax-efficient path to achieving financial independence and a more secure retirement future.
1. What is the exit age for NPS?
The NPS exit age depends on the type of exit: a normal exit is at or after age 60, but you can also exit prematurely at any time. You can choose to defer your exit up to age 75.
2. Is it better to invest in PPF or NPS?
NPS may be better for those seeking higher returns and willing to take moderate risks, as it invests in equities and debt. PPF is ideal for risk-averse individuals preferring a fixed return.
3. How much of PPF is tax-free?
The amount deposited in the PPF Account every financial year is exempt from tax (up to Rs. 1.5 lakh under Section 80C.
4. What is a poor NPS return rate?
Typically, B2B brands can expect a response rate ranging from 4.5% to 39.3%. The average NPS response rate was 12.4%. But you can aim for much higher than that.
5. Which bank is best for NPS?
ICICI Prudential and HDFC Pension Fund have shown some of the highest returns, particularly in the equity category. ICICI Prudential recorded 73.43% returns in 1 year for NPS Tier-I Scheme E (Equity), while HDFC Pension delivered 53.61%.
