PPF vs NPS: How to turn Rs 3,000 per month into Rs 44 lakhs?

When choosing a long-term investment, most people prefer Public Provident Fund (PPF) and National Pension System (NPS) over others. However, the objectives of both these investment options may be different. While NPS is purely a retirement scheme, PPF needs to be kept active even after maturity. Let us know about these two in detail so that you can make an informed choice.

Since NPS a retirement scheme, investment is made in this so that the pension continues after the age of 60 years. On the other hand, to get a pension through PPF, you have to keep it active even after maturity.

PPF is a 100% debt instrument, i.e. its entire money is invested in bonds etc., whereas NPS has a share of both debt and equity. In NPS, the investor has the option that to keep the equity share up to 75% in it. Experts say that if the investor has a high-risk appetite, then he/she can keep the debt-equity ratio 50:50, to get a return of up to 10 percent in the long term, which is about 3 percent from the 7.1% of PPF. 

In NPS, after maturity, a minimum of 40 percent is mandatorily put in the annuity, which means pension. This money will be used to get a monthly pension after retirement.

By investing in both these schemes, you also get the benefit of tax exemption. Income tax exemption is available on investment of Rs 1.5 lakh annually. There is no fixed maturity limit in NPS, whereas PPF matures in 15 years, so those who want to continue investing in PPF for a long period have to carry forward the investment for a period of five years every time. That is, if someone wants to continue PPF for 30 or 35 years, then he can continue it in blocks of 5 years. Experts advise that investors should opt for PPF extension as they get the benefit of compounding interest.

Let us now see which option between PPF and NPS gives you more benefit or amount on retirement. Suppose you are 30 years old, you want to invest for the next 30 years so that when you are 60 years old, you have a huge amount in your hand.

Rs 3,000 per month investment in PPF

• Age: 30 years
• Investment period: 30 years
• Investment every month: Rs 3,000
• Annual return: 7.1%
• Total investment: Rs 10.80 lakhs
• Maturity value: Rs 37.08 Lakh

So, if you put Rs 3,000 monthly in PPF, that is, Rs 36,000 for one year and if you continue this investment for 30 years, then at the current 7.1% interest rate, you will get Rs 37,08,219 after 30 years.

Rs 3,000 per month investment in NPS

• Age: 30 years
• Investment period: 30 years
• Investment every month: Rs 3,000
• Estimated Return 8.0%
• Total investment: Rs 10.80 lakhs
• Maturity value: Rs 44.52 lakhs

If you put 40 percent of this maturity value in the annuity, that is, Rs 17.81 lakhs, your lump sum amount will be Rs 26.71 lakh and your monthly pension will be Rs 11,874. Here, we have taken an 8% expected return on the annuity.