How often do you dream about your retirement? A time when you don’t have to wake up early, spend hours in bumper-to-bumper traffic, or worry about your workload through the weekend. These dreams can only materialize if you plan your finances well to overcome ever-increasing inflation and rising life expectancy. The Government of India has introduced several financial plans to help you enjoy a smooth ride to retired life.
The Need for Retirement Plans
Millennials today are retiring earlier, living longer, and dealing with unprecedented inflation rates. Without long-term financial planning, they could feel forced to compromise on their retirement dreams or their standard of living. The Government of India has introduced multiple retirement plans to help you live your ideal retired life. Let’s see how two popular schemes, NPS and PPF, compare.
NPS vs PPF
The NPS invests in market instruments, providing three-year returns between 7% to 15%. Although the market poses some risk, the system provisions to cap your equity exposure and reduces it over time to ensure steady returns for your retirement.
The PPF offers government-guaranteed returns. As of 1st January 2023, the PPF provides a return of 7.1%, compounded annually
The NPS welcomes investors between 18 and 70, while the PPF does not impose any age restrictions. Parents and guardians can start safeguarding their child’s financial future by investing in the PPF on their behalf.
The NPS requires a minimum investment of INR 1,000 each year. There’s no cap on the maximum amount you can put into your NPS account.
The PPF, on the other hand, requires a minimum investment of INR 500 per financial year. They cap annual investments at INR 1,50,000.
With the NPS, you choose the allocation of funds and how your money gets invested. Even if you don’t actively select your investment avenues, the NPS has auto-investment life cycle options based on your risk appetite.
The PPF does not provide you with any control over your investment. They take care of the funds for you.
As a retirement-focused fund, the NPS locks investors in until they turn 60. You can leave the NPS after completing at least five years. However, you must use 80% of the accumulated corpus to purchase an annuity.
However, the amount you receive from the annuity purchased with the NPS corpus after retirement does attract taxes. The interest earned on the PPF amount does not get taxed.
So what’s the better option?
There’s no correct answer to this question. The NPS allows you to diversify your portfolio and take advantage of market-linked returns. While high returns could help battle inflation, the investment comes with inherent risks.
The PPF offers stable risk-free returns, but the amount may not be enough to help you meet your retirement goals.
When it comes to your retirement, you can’t afford to take a chance. You can invest in both the NPS and PPF to build a retirement corpus that helps you achieve your dreams.