PPF vs NPS: In PPF account, center announces PPF interest rate on quarterly basis while in NPS scheme, one’s money gets exposure of both debt and equity
PPF vs NPS Calculator: Public Provident Fund (PPF) and National Pension System (NPS) are widely considered long-term investment tools. However, PPF is completely a debt instrument while NPS scheme is market-linked investment tool. In PPF account, center announces PPF interest rate on quarterly basis while in NPS account, one’s money gets exposure of both debt and equity. Currently, PPF interest rate is 7.1 per cent. According to tax and investment experts, if a person chooses equity and debt exposure in NPS account in 60:40 ratio, then one can expect to get around 10 per cent NPS interest rate on one’s investment.
Speaking on PPF vs NPS; SEBI registered tax and investment expert Jitendra Solanki said, “PPF is a debt instrument and in this small saving scheme, center announces interest rate on quarterly basis. But, an NPS return is market-linked as NPS account gets exposure in both equity and debt. As per the government rules, NPS account holder can choose up to 75 per cent equity exposure while one’s withdrawal limit should not be more than 60 per cent of the maturity amount.” Solanki said that one should not go beyond 40 per cent for annuity purchase as annuity will give around 6 per cent returns, which is enough for one’s monthly pension.
On how this 60:40 equity debt exposure will lead to rise in NPS account holder’s money Kartik Jhaveri, Director — Wealth Management at Transcend Consultants said, “In long-term perspective, equity investments are expected to give at least 12 per cent returns while debt exposure yields 8 per cent return. When the NPS account is having 60:40 equity debt ratio, one’s equity return in long-term will be around 7.2 per cent (12 x 0.60) while debt exposure will fetch 3.2 per cent (8 x 0.40). So,, in 60:40 equity debt exposure, NPS interest rate is expected to be around 10.40 (7.2 + 3.2).” Jhaveri said that in worst case scenario, one’s return in NPS will be around 10 per cent if the investment is for long-term.
Assuming ₹8,000 monthly investment in PPF account for 30 years at 7.1 per cent returns, the State Bank of India or SBI PPF calculator suggests that one’s maturity amount will be ₹98,88,583.
Out of ₹98,88,583, one’s net investment throughout the investment period will be ₹28,80,000 or ₹28.80 lakh and the total PPF interest earned will be ₹70,08,583.
Now assuming the same ₹8,000 monthly investment in NPS account with 60:40 equity debt exposure, NPS calculator suggests that one’s NPS withdrawal amount after 30 years will be ₹1,09,40,762 while the annuity value will be ₹72,93,841. This ₹72,93,841 will yield ₹36,469 monthly pension if the annuity return is assumed at 6 per cent (as said by Jitendra Solanki).
So, is someone has some risk appetite, the NPS is more suitable than PPF as it’s withdrawal amount is ₹10,52,179 higher than PPF maturity amount and the NPS account holder will get ₹36,469 monthly pension too.