PPF ( Public Provident Fund (PPF) and National Pension System (NPS) both are investment instruments for long-term financial goals. On maturity of PPF, full or partial amount can be withdrawn, while on maturity of NPS, 60 percent of the fund can be withdrawn, the remaining amount continues to be received by you as annuity or pension.
Under 80C of the Income Tax Act 1961, tax exemption is available on investment in both. The question is, which of the two is the best investment instrument in terms of tax exemption. Experts say that the structure of both the instruments is different. Therefore, they should not be compared only on the basis of tax exemption. Instead of knowing the specialty of both, you should decide to invest in them.
PPF
PPF is a 15 year savings scheme. The interest rate on this is fixed by the government every quarter. At present the interest rate is 7.1 percent. Under PPF, Rs 500 to Rs 1.5 lakh can be deposited per year. If you deposit 1.5 lakh in PPF every year, then after 15 years it will become Rs 40.68 lakh at an interest rate of 7.1 percent. This maturity amount is tax free. After this, PPF can be continued even further in blocks of five years. Looking at the inflation and pre-tax returns of PPF, it is still a great investment instrument, which suits your long term financial goals.
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National Pension System (NPS)
NPS is an investment made keeping in mind the financial needs after retirement. After opening the account, money has to be deposited in it for 60 years. On maturity, 60% of the fund is available. This amount is tax-free. The rest of the amount is handed over to an insurance company from where the investors get pension for life. But this pension comes under tax net. Unlike PPF, it does not have fixed returns but it depends on the returns earned by the fund from investments in equity and debt.
Experts say that investing in NPS and PPF should not be done keeping in mind the tax savings only. PPF can be opted for long-term financial goals as it saves tax. On the other hand, NPS should be adopted as a wealth creation instrument as it expects higher returns than investment in equity and debt.
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