NPS vs PPF : NPS vs APY – Select the Best Retirement Plan

Introduction

Retirement is that period of your life when you don’t work effectively and accordingly you don’t have a regular source of income.
While your type of income dries up, you still face basic lifestyle expenses and clinical costs in your mature age.
To live a financially independent life, you need to create a retirement corpus during your dynamic working life.
This corpus would then assistance in meeting your expenses post-retirement.
In addition, if you plan appropriately, you can also leave behind a legacy for your kids.
There are various types of investment avenues when it comes to retirement planning. You can pick any avenue and invest in retirement. Three such avenues, which have been introduced by the GOI, are the National Pension Scheme, Atal Pension Yojana and Public Provident Fund scheme.
Let’s discuss what these avenues are and their comparative similarities and differences (NPS vs PPF & NPS vs APY).

National Pension Scheme

It is a intentional, post-retirement investment fund initiated by the Central Government of India. it is offers social security in the form of pension.
Subscribers make voluntary contributions into their Pension tier-1 Account to collect a post-retirement corpus. This plan covers business owners and employees of all sectors.
Non-Resident Indians (NRIs) also have the alternative to open an account under the National Pension Scheme.

Also Read National Pension System : A Complete Guide for Retirement Plan

Public Provident Fund

Since its launch in 1968, the Public Provident Fund has become one of the most accepted investment schemes among the citizens.
Its main goal is to encourage the citizens to invest their savings regularly by providing tax-free returns to them.

You can open a account with any post office/ authorised bank to invest under the PPF plan of the Government.
PPF is a long-term investment plan where you can invest to earn guaranteed, tax-free returns.
The interest earned on the investments in a account are exempted from income tax under section 80C of The Income Tax Act.
In this paragraph, we have drawn a comparison between the NPS and PPF, to find out which is a best option to build a retirement corpus.

NPS vs PPF

Rate of interest

NPS
Depending on Market approx. 10-14% - Subject to changes in the market.

PPF
7.1 Q3 FY 2020-21
Interest shall be applicable as notified by Government of India on quarterly basis.
The interest shall be calculated for the calendar month on the lowest balance in the account between the close of the the end of the month.
Interest shall be credited to the account at the end of each year.
Safety

NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) and National Pension System Trust (NPST), established by the PFRDA, is the registered owner of all assets under NPS.

PPF
it's a risk-free investment & is guaranteed by the Government of India.
It is a government-backed safe savings avenue.
Eligibility

NPS
Any Indian citizen between 18 & 65 years of age.

PPF
A single adult by a resident Indian.
A guardian on behalf of minor/ person of unsound mind .
Retired Defense Employees above 50 years of age and below 60 years of age, subject to condition that investment to be made within 1 month of receipt of retirement benefits.
Minimum Investment

NPS
Rs. 500/- (Minimum amount per contribution).
Rs. 1000/- (Minimum contribution per Financial Year).

NPS Contribution: Online and Offline | Contribution by employer 2020-21

PPF
Rs. 500/- in a Financial Year.
Maximum Investment

NPS
No Limit

PPF
Rs. 1.50 lakh
1.50 lakh shall be inclusive of the deposits made in his/her own account and in the account opened on behalf of minor.
Tax Deduction on Contribution

NPS
Rs.1.5L (under Sec 80C of the IT Act, 1961).
up to Rs.50000 as deduction under Section 80CCD (1B) of the IT Act, 1961.

Tax Benefits of NPS: Enjoy 1.5L + 50K Extra Benefit | New & Old Regime

PPF
Up to Rs. 1,50,000 u/s 80c
Taxability of Matured Sum

NPS
60% of the matured sum can be withdrawn tax-free. The balance 40% must be mandatorily used to buy an annuity.

PPF
Tax-Exempt
Premature withdrawal

NPS
Available*
*25% of the contributions can be withdrawn after staying invested for 3 years for specified reasons like higher education, marriage etc.

PPF
Available*
*Partial withdrawals may be made 7th year onwards.
Loan Facility

NPS
Not Available

PPF
Loan can be taken after the expiry of one year from the end of the Financial Year in which the initial subscription was made.
for example- Account open during 2010-11, loan can be taken in 2012-13.
Loan can be taken up to 25% of balance to his credit at the end of the second year immediately preceding the year in which loan is applied.
How to buy

NPS
Online
Click Here for Registration

PPF
Offline process is in post office.
Online/offline is dependent on Banks.

Nomination Facility

NPS/PPF
Available
NRI

NPS
Non-Resident Indians are eligible to open an account.

PPF
Not eligible.
Returns Risk

NPS
Medium
Returns earned from the NPS depends on the asset allocation and Pension Fund Manager an investor opt form.

PPF
Very Low
PPF is backed by the GOI and the risk involved is very minimal, Therefore it offers guaranteed risk-free returns.

Atal Pension Yojana

The government is worried about the mature age income security of the working poor and is focused on encouraging and enabling them to save for their retirement.
To address the longevity risks among the workers in unorganized sector and to empower the workers in unorganized sector to voluntarily save for their retirement.

The government of India has therefore announced a new plan called Atal Pension Yojana (APY) in Financial year 2015-16 budget.
The APY is focused on all citizens (age 18-40) in the unorganized sector.
Under the APY, there is ensured minimum monthly pension for the subscribers ranging between Rs. 1000/- and Rs. 5000/- every month.

both APY and NPS offer post retirement financial security. Nonetheless, there are a few contrasts between both the plans which one needs to understand to make a smart investment. Let’s look at them.

NPS vs APY

Rate of interest

NPS
Depending on Market approx. 10-14%
Subject to changes in the market.

APY
Fixed Amount.
Based on APY – Contribution Chart.
Atal Pension Yojana SBI Chart
Safety and Security

NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA)
and National Pension System Trust (NPST), established by the PFRDA, is the registered owner of all assets under NPS.

APY is administered by the PFRDA through
NPS architecture.

Eligibility

NPS
Any Indian citizen between 18 & 65 years of age.

APY
18-40 years
Minimum & Maximum Investment

NPS
Rs. 500/-
(Minimum amount per contribution).
Rs. 1000/- (Minimum contribution per Financial Year).
NPS Contribution: Online and Offline | Contribution by employer 2020-21
No Limit for Maximum contribution.

APY
Subscriber joining at 18 years of age have to contribute Rs. 42 and Rs. 210 on
monthly basis to get a fixed monthly pension of Rs 1000 and Rs 5000 respectively.
The monthly contribution is payable by auto debit facility from the Subscribers.
Risk Factor

NPS
Medium
Returns earned from the NPS depends on the asset allocation and
Pension Fund Manager an investor opt form.

APY
Very Low
The benefit of minimum pension would be guaranteed by the Government of India.
Tax Benefits

Same for both
Rs.1.5L
(under Sec 80C of the IT Act, 1961).
up to Rs.50000
as deduction under Section 80CCD (1B) of the IT Act, 1961.
Tax Benefits of NPS: Enjoy 1.5L + 50K Extra Benefit | New & Old Regime
Government Contribution

NPS
Not applicable

APY
Government of India will also co-contribute 50% of the subscriber’s
contribution or Rs. 1000 per annum, whichever is lower.
Government co-contribution is available for those who
are not covered by any Statutory Social Security
Schemes and is not income tax payer.
Premature withdrawal

NPS
Available*
*25% of the contributions can be withdrawn after staying
invested for 3 years for specified reasons like
higher education, marriage etc.

APY
No premature withdrawal, except in death or any critical illness.
How to buy

NPS
Online
Click Here for Registration

APY
All bank account holders may join APY.
Atal Pension Yojana SBI Chart
Nomination Facility

Available for both
NRI

NPS
Non-Resident Indians are eligible to open an account.

APY
Not eligible.
Account

NPS
The account holder gets the PRAN -
Permanent Retirement Account Number (PRAN).
The two types of NPS accounts offered by PRAN -
Tier-1 (Default) and Tier-2 (Voluntary) account.

APY
Only one account.

Source – NPS

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