PPF and NPS are two most popular long-term investment schemes. But which one will make you crorepati faster? Find out using PPF calculator and NPS calculator
New Delhi: Public Provident Fund (PPF) and National Pension System (NPS) have become two of the most popular retirement investment options recently. While PPF is solely debt-oriented backed by the government, NPS is a market-linked scheme. While PPF fetches a floating rate of interest determined by the government every quarter, NPS returns are based on investment mix and market but the latter is heavily regulated.
PPF is a solely debt-oriented scheme backed by the government and handover a floating rate of interest of 7.1 percent compounded on an annual basis. NPS consists of both debt and equity wherein the returns are based on the market performance. The tenure of the PPF account is 15 years and after the account maturity, one can either exit or opt for extension. On the other hand, in NPS, the period of investment is till superannuation or 60 years of age whichever is earlier.
PPF vs NPS: Which will accumulate Rs 1 crore faster
1. PPF: In order to accumulate Rs 1 crore from PPF, investors need to be patient and regularly invest for 25 years at the current interest rate of 7.1 percent. Assuming that Rs 1.5 lakh are invested annually by a person at 7.1% rate in a PPF account, then time taken for them to become a crorepati would be 25 years. This is because periodic investments in PPF for the long term can do the trick with the power of compounding.
The longer the money stays invested, the bigger it grows, experts say. If someone starts investing Rs 12,500 per month (the maximum monthly investment that can be done in PPF) and continues the PPF account till 15 years, they will earn over Rs 43 lakh at the time of maturity, assuming the intrerest remains 7.1% throughout the investment period.
If the account is further extended for five years, then after investing Rs 1.5 lakh per year for 20 years ( first extension) at 7.1 percent, the PPF account balance will be about Rs 73 lakh. Extending the account once more for a period of 5 years, if the investor continues to invest Rs 1.5 lakh per year, after 25 years, the PPF account balance will be over Rs 1 crore, assuming interest remains constant at 7.1 per cent for the whole investment period.
2. NPS: On the other hand, if an investor regularly invests Rs 12,500 every month or Rs 1.5 lakh annually (at par with investor A) at a conservative assumed return of 10% in NPS, then the time taken for them to create a corpus of Rs 1 crore will be 13.5 years approximately. In a time period of 25 years, the corpus from NPS will be Rs 1.67 crore as compared to the maturity value of Rs 1.03 crore accumulated in the same period by investing in PPF.
However, it is worth remembering that the maturity sum in the case of NPS is given after superannuation or age 60. Also, PPF has other benefits like income tax deduction of upto Rs 1.5 lakh in a financial year, tax exemption from interest earned on investment amount and the final maturity amount as well which are not available in NPS. Another drawback of NPS is the compulsory conversion of at least 40% of maturity value into annuity.
